Covid-19 Special Edition

We thought we’d dedicate this issue of the Fulcrum Compliance Newsletter to Covid-19 issues.

Most of these have been the subject of a recent FCA news release – we give the appropriate links below, but most can be found here. Do look there to see if there are other announcements relevant to you.

If you have any questions about compliance at this difficult time, do get in touch.

Everything’s different – nothing’s changed

The central message coming out from FCA is that they know that it’s not possible to adhere to all of the rules in these times of remote working – but that doesn’t mean that those rules no longer apply.

This attitude has been characterised by Latham & Watkins, leading City lawyers, as one of “pragmatism and forbearance – within reason.” That means that you’ll be allowed some flexibility in how you comply now, but don’t use that as an excuse to take advantage.

What did you do in the great Covid war?

With so much going on, you’ll find it difficult to keep track of the many changes that you’ve already made to keep the firm running.

But there will come a point when it all ends and it’s possible that at that stage FCA will want to know how you continued to meet – or more likely did not meet – your obligations.

You should consider maintaining a “running document commentary” recording the steps you took and when you took them.

FCA specifically refer to this in relation to any changes you may need to make in your Senior Management arrangements.

This will make it much easier to answer FCA’s question than trying to think back to what actually happened in the fog of this particular war.

Let’s be careful out there…

Everybody’s trying their best to do the right thing, but we’re all in a much riskier environment.

Some pointers:

  • Do check that your IT security is fit for home working – cyber security risks are everywhere. Ask yourself: have you ever changed your router password? Should your work devices be on a separate network? Are the smart devices on your network password protected?
  • Given the increased market volatility, trading errors can proliferate. There’s probably more material non-public information which is price-sensitive out there, so you may want to remind staff of their obligations…

Stop the Roller Coaster…

In its “Dear CEO” letter of 31 March, FCA relaxed its rule in COBS 16A.4.3 requiring firms to write to discretionary portfolio holders when the value of their holding fell by 10%.

(Apparently the receipt by investors of successive copies of these letters was causing undue alarm…) This rule will not apply until October.

But in order to benefit from this forbearance, firms must have at least done one of the following:

  • have issued at least one such notification to all retail clients within a current reporting period;
  • subsequently provided general updates, informing clients of market conditions, explaining how they can check their portfolio value and inviting them to contact the firm if they wish.

Cash tight?

The rules are the rules, and FCA still expects firms to adhere to their capital requirements. But these are not normal times, and FCA has said “We want to see firms to continue operating in this challenging period, and, where we can, we intend to provide flexibility to regulated firms to ensure this.”

But if you’re not able to meet your capital requirements, you must get in touch with FCA as soon as you can foresee this happening. As they say, “If a firm is concerned it will not be able to meet its capital requirements, or its debts as they fall due, they should contact their FCA supervisor with its plan for the immediate period ahead.”

Our experience is that if you do this, you should get a more sympathetic hearing. See FCA’s full note here.

Reach out and touch…

Diana Ross could do that in 1970, but we can’t now. Those CASS firms with physical client stock in the office safe may struggle to carry out reconciliations in these times of essential-only travel. FCA rules require the reconciliation to be carried out at least six-monthly.

So if you’re unable to carry out a monthly physical reconciliation, don’t worry. That’s a non-notifiable internal breach. If it gets to six months and you’ve not done one, you’ll need to contact FCA with your plan of how you’re going to address this.

See FCA’s views on CASS in a Covid climate here.

It’s good to talk…

It’s not just your elderly relatives who are missing you. FCA is missing you too. They want to talk to you.

“Firms should make us aware if they are unable to meet these [recording] requirements,” they say. “If firms have concerns [about meeting reporting deadlines], they should contact us as soon as possible.”

So go on. Pick up the phone. You may make a new friend…


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