FCA extends temporary 10% drop rule measures

FCA extends temporary 10% drop rule measures

The Financial Conduct Authority has extended temporary measures that alter the 10 per cent drop rule.

In a statement on December 22, the FCA said the temporary measures will remain in place until parliament has ratified a statutory instrument that repeals the rule.

The controversial 10 per cent drop rule was introduced by Mifid II in 2018 and requires that clients are informed by the end of the working day if their portfolios drop by 10 per cent or more in a certain period, which is at least quarterly.

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Any further drops in value by more than 10 per cent must also be communicated.

The regulation has been criticised due to the impact it could have on clients who become spooked by market volatility.

During the Covid-19 pandemic, which saw huge fluctuations in global markets, the rule was suspended.

The government has laid before parliament a statutory instrument which scraps the rule permanently from January 18, 2023.

Other measures in the statutory instrument, which concern organisational requirements for investment firms, come into effect on June 7, 2023.

Statutory instruments are a form of legislation which allow ministers to amend the law without necessarily a vote in parliament if they have been given the power to do so in an already-passed act of parliament - in this instance the act in question is the one which implemented Mifid II in 2014.