Warning FCA will not be lenient on conduct amid Covid crisis

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Warning FCA will not be lenient on conduct amid Covid crisis

The Financial Conduct Authority will not be lenient on firms which neglect their standards of conduct amid the Covid-19 crisis, a regulatory consultant has warned.

The watchdog has already re-shuffled and delayed its regulatory calendar in light of the ever-spreading economic and social fallout, with a number of industry figures calling for “regulatory forbearance in these extraordinary times”. 

This week it emerged it was delaying its decision on new rules for defined benefit transfer advice.

But one area in which regulatory expert Ben Blackett-Ord, chief executive at consultancy Bovill, said the FCA was unlikely to show any leniency to firms, was standards of conduct. 

Mr Blackett-Ord said: "In these tricky times, in terms of things like conduct, there is no room for firms to verge away from the high standards the regulator expects.

"I think the regulator would be right to say this is not the time and place for leniency because now is the time to maintain the highest possible ethical standards and examples. 

"Now is the time to work even harder to look after your clients and staff."

The recent roll-out of the Senior Managers and Certification Regime to the advice sector last year introduced another level of individual accountability within firms, including a new standard for personal conduct. 

Mr Blackett-Ord warned the FCA was also likely to be as "concerned as ever" about firms potentially going bust and ensuring client assets are protected, but he said there would be areas in which a "degree of forbearance" was appropriate. 

He added: "To my mind the FCA has always been a pragmatic regulator. In relation to operational requirements - things like getting returns in on time - I would be surprised if the FCA didn’t take a more pragmatic approach.

"Clearly it understands everybody is working under a BCP regime at the moment and meeting some of those operational challenges is going to be tough and I have no doubt we will see the FCA being a bit more lenient in some areas.

"As long as firms can demonstrate they are doing their best - in relation to the operational aspects - I think the regulator is likely to be happy with that, as long as we are not seeing standards falling."

The Bovill boss pointed to the regulator's recently published guidance, in which it set its expectations for mortgages and small business loans during these turbulent times, as supporting a certain element of flexibility in its supervision of the market. 

Last week the FCA warned against repossessions in the current market climate and asked lenders to offer struggling customers a three-month mortgage payment holiday in light of the spreading coronavirus pandemic and the associated economic fallout. 

Mr Blackett-Ord said: "The guidance gives a hint of that kind of pragmatic approach in terms of requiring lenders to judge firms on the basis of past performance, and not on the basis of what they are suffering at the moment.”

Mark Turner, managing director of compliance and regulatory consulting at Duff & Phelps, said it would not be in the best interests of consumers, and therefore the FCA's regulatory goals, to allow "whole sectors" to collapse as a result of capital troubles during the current economic climate. 

Mr Turner said: "This is obviously a developing situation but it would seem to me that they would not want whole groups of firms to collapse, because it cannot be in the interest of consumers - for what could be a relatively short-term shock to the system - to cause whole sectors to collapse.

"In the interests of markets continuing to function well, then for the advisory sector to collapse - arguably through no fault of its own as well - cannot be in the best interest of consumers in the market."

This month has seen markets witness some of their biggest daily declines in 30 years, with the FCA last week putting out a message asking any firm which faced difficulty managing its liquidity and financial resilience to report to the regulator "immediately".

Mr Turner added: "That is not to say I can necessarily sit here with certainty and say the FCA is going to allow every firm to operate with no capital.

"But I would like to think this message is one which shows the FCA is willing to engage in a conversation. 

"Quite what that will look like and how much, if any, regulatory forbearance they are willing to accept is not known." 

Last week adviser trade body Pimfa called on the financial watchdog to show "regulatory forbearance" during what it said were  "extraordinary times" and professional body the PFS warned of regulations adding to "workload pressure and anxiety" amid the coronavirus lockdown. 

Jonathan Greenstein, director at compliance consultancy Complyport, warned despite the "unique challenge" posed by Covid-19, financial services companies would still be expected to ensure compliance with regulations. 

Mr Greenstein said firms would need to take into account the impact of the pandemic when carrying out capital adequacy assessments and the potential impact on cash flow.

He added: "Firms must monitor capital and cash flow at least monthly, and more frequently where required or where prudent to do so.

"Firms must understand that as regulators expect these issues to have been planned for and provided for, there is no appetite from regulators to excuse non-compliance."

The spreading coronavirus crisis has caused global markets to tumble as governments across the world shut down borders, locked down domestic travel and closed businesses.

The upheaval forced the Bank of England to slash interest rates to a record low of 0.1 per cent last week as it battled to boost the economy against the pandemic. 

rachel.mortimer@ft.com 

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