Financial Conduct Authority  

FCA extends pause on Mifid 10% rule

FCA extends pause on Mifid 10% rule

The City watchdog has extended its flexible approach to the 10 per cent drop rule for retail investors in preparation for further potential market volatility. 

In an update yesterday (September 30) the Financial Conduct Authority said the move was in light of difficult investment choices faced by consumers amid the continued spread of the coronavirus and the upcoming end of the Brexit transitional period. 

The regulator first paused the 10 per cent depreciation rule under the Markets in Financial Instruments Directive II in March in response to some of the biggest market falls seen in modern times as a result of the pandemic. 

In normal circumstances the rule dictates portfolio managers inform clients by the end of the business day if the value of their portfolio depreciates by 10 per cent or more 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 10 per cent or more.

But the flexible approach adopted by the FCA this year means firms are only required to issue one notification within a reporting period providing they continue to give general market updates to their clients.

The relaxed interpretation of the rules was intended to end this week, but the regulator has extended the measure until the end of March next year. 

But as part of the flexible approach firms will still be required to inform clients that they may not receive similar notifications if their portfolio drops by another 10 per cent in the reporting period. 

The FCA also asked that clients be reminded of how to check their portfolio value and signposted to "non-personalised communications", such as on websites, which outline updates on market conditions. 

The watchdog initially pressed paused on the rule in response to industry concerns the frequent market updates in a "highly volatile market" would worry investors and squeeze the operational burden on firms. 

At the beginning of the pandemic the Personal Finance Society warned the 10 per cent rule added "workload pressure and anxiety for consumers"during the coronavirus crisis. 

In yesterday's update the FCA said: "Firms must still pay due regards to the interests of their customers and treat them fairly, and pay due regard to the information needs of their clients, and communicate information to them in a way which is clear, fair and not misleading.

"If we have concerns that potential serious misconduct may cause, or has caused, significant harm to consumers, then we will consider the appropriate response, which may include opening an investigation."

rachel.mortimer@ft.com 

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