The City watchdog will allow advisers to take a flexible approach on the 10 per cent depreciation notifications in light of the volatile market conditions caused by the coronavirus crisis.
In a Dear CEO letter to firms that provide services to retail investors, published yesterday (March 31), the Financial Conduct Authority said firms were only required to issue one notification within a reporting period providing they continued to give general market updates to their clients.
It said: “We have no intention of taking enforcement action where a firm has issued at least one notification to a retail client within a current reporting period — indicating their portfolio has decreased in value by at least 10 per cent — and subsequently provides general updates through its website or other public channels.
“These communications should update clients on market conditions, explain how clients can check their portfolio value and invite clients to contact the firm if they wish.”
The FCA also said firms could choose to stop providing 10 per cent depreciation reports for any professional clients.
This flexible approach will be in force for six months, until October 1, 2020.
In normal circumstances the rule dictates that portfolio managers inform clients by the end of the business day if the value of their portfolio depreciates by more than 10 per cent from the beginning of the last reporting period, which is at least quarterly.
It also requires the manager or adviser to inform their client of each subsequent fall of a multiple of 10 per cent.
The Personal Finance Society recently warned the 10 per cent rule added “workload pressure and anxiety” to firms during the coronavirus crisis due to volatile markets.
The FTSE 100 has seen some of its biggest rises and falls in 30 years as countries closed borders and introduced lockdowns to curb the pandemic and 25 per cent has been wiped from the UK’s blue chip index since the start of the year.
Anthony Morrow, chief executive of OpenMoney, said he supported the easing of these “damaging rules”.
He said: “In the current unprecedented situation, many financial advisers are working hard to contact and reassure investors and help them navigate their finances in difficult times.
“But these enforced 10 per cent drop notifications are working against us, fuelling the concern many already feel over their financial position.”
The FCA’s letter also said its implementation of investment pathways and platform switching provisions would likely go ahead as the “rules were already made” and were in the process of being referred to the board.
Investment pathways, set to come into force in August, require pension providers to offer their non-advised customers a choice of four pathways to meet their retirement objectives.
The regulator’s platform switching rules, scheduled for July, mean platforms must offer consumers the choice to transfer investments that are common to two platforms via an in-specie transfer (where the investments are transferred with the customer remaining invested throughout).
In yesterday’s letter, the FCA said it would update its website as soon as possible on these changes.
It had already shelved its work on the suitability of advice and its joint probe into open-ended funds with the Bank of England due to the coronavirus.
imogen.tew@ft.com
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