The Financial Conduct Authority (FCA) has published various statements and webpages on COVID-19, focussed on the financial sector's response to the outbreak. It has significant resources and dedicated teams handling the situation and it "stands ready to take any steps necessary to ensure customers are protected and markets continue to function well." In a speech delivered by Nausicaa Delfas, Executive Director of International and a member of the Executive Committee at the FCA, on 6 May 2020, Ms Delfas noted that the FCA has been working with national and international partners to share insights on market developments for the orderly functioning of markets and coordinate responses where necessary. She reminded firms to consider the medium- to longer-term implications and their post crisis recovery strategy including preparing for the end of the Brexit transition period. Similarly, in a podcast interview on 10 June 2020, Christopher Woolard, interim Chief Executive of the FCA, discussed how the FCA has rapidly reprioritised work in light of COVID-19 (for example intervention on Business interruption insurance and mortgages), and talks about future business planning.
As the FCA continues to deal with the challenges from COVID-19, in a speech delivered on 4 June 2020, Megan Butler, Executive Director of Supervision – Investment, Wholesale and Specialists at the FCA, stated that while the industry has responded well to COVID-19 there is a need to transition from the immediate ‘incident response’ towards focusing on longer-term impacts. In this regard, the FCA's key areas of focus include operational resilience, financial resilience (including the preservation of client assets and money) and acting with integrity. Further, on 8 July 2020, the FCA published a speech by Mr Woolard on the role of the FCA in the post-coronavirus era of financial regulation. My Woolard noted the considerable resilience of the fund management industry so far but highlighted the challenges that lie ahead. He stated that the COVID-19 crisis and Brexit have reinforced the need for outcome-based regulation. The FCA now has the opportunity to look at its rulebook, focusing less on tick box compliance and more on promoting outcomes that serve the public interest.
This webpage sets out the measures taken by the FCA and key points firms should be aware of. Please see our separate webpages on the response by the Bank of England and the Prudential Regulation Authority, the impact on the UK's payments industry and the measures taken by the European financial regulators in response to COVID-19.
- Annual Report and Accounts 2019/20 – After a 3-month delay, the FCA published its Annual Report and Accounts on 10 September 2020. The Report has a dedicated section that highlights the FCA's policy adjustments and guidance in light of COVID-19 (please see pages 22-24).
- Regulatory change – the FCA published an updated webpage on 1 May 2020 stating it is delaying activity which is not critical to protecting consumers and market integrity in the short-term, to allow firms to focus on supporting their customers. This includes extending the closing date for responses to consultation papers and Calls for Input until 1 October 2020, as well as, postponing publications and other activity. Similarly, on 25 June 2020, the FCA updated its webpage to announce further delays to planned work for 2020 including, the Joint PRA and FCA work with the Climate Financial Risk Forum, consultation papers on the FCA's approach to market integrity and wholesale markets, and on mortgage switching and investment platform exit fees, and the interim report on the FCA's market study on credit information. On 12 November 2020, Nikhil Rathi, the FCA Chief Executive, delivered a speech on the future challenges and priorities for the FCA. One of the highlights from the speech is that, as the FCA continues to face significant challenges from the continuing COVID-19 pandemic, the FCA must not lose sight of long-running issues that are reshaping financial services, including gaps between generations in terms of wealth and opportunity, increasing pressure on the financially vulnerable, the growth of big data and climate change.
On 13 November 2020, the FCA published a statement to provide an update on work that the FCA intends to either stop or postpone in light of the ongoing impact of COVID-19 and economic conditions, the highlights of which are:
- Duty of care - following on from the FCA's July 2019 feedback statement, the FCA intends to carry out work relating to a potential duty of care for firms. The work has been delayed due to COVID-19 and the FCA now aims to consult on potential options in Q1 2021.
- Single easy access rate (SEAR) for cash savings - the FCA does not consider that introducing a SEAR would be proportionate to the current level of harm in the market. However, the FCA will continue to monitor the market and may revisit its priorities if it sees significant harm to consumers in the future.
- Platform exit fees consultation - the FCA has decided to stop work on the consultation.
- Financial regulation in the UK – in a speech published on 21 September 2020, Christopher Woolard, the interim chief executive at the FCA, stated that the economic impact of COVID-19 has underscored the need for change within the FCA. He has seen greater than ever co-operation between the FCA and the industry during this time and the co-operation must be the model for ensuring the digitally excluded do not become the cash excluded.
- FCA policy work streams – in a 'Dear CEO' letter published on 31 March 2020, the FCA provided an update on the implementation deadlines for a number of initiatives. The rules for two initiatives (investment pathways and platform switching provisions) have already been made and have been referred to the Board for further consideration. Its ongoing work with firms providing defined benefit transfer advice will continue. The policy statement on pension transfer advice has been delayed to Spring 2020. Follow-up work on assessing the suitability of advice, which centred on retirement income advice, has been paused.
- Operational resilience - the FCA's first statement on COVID-19, published on 4 March 2020, focussed on the sector's response to the outbreak and resilience. It noted that the FCA expects all firms to have contingency plans in place to deal with major events and that it is working closely with a wide range of firms to review contingency plans, including "assessments of operational risks, the ability of firms to continue to operate effectively and the steps firms are taking to serve and support their customers". The FCA made clear they expect firms to still meet their compliance and regulatory requirements, although they have no objections if firms meet the standards and undertake the activities from backup sites or staff working from home.
- Financial resilience – in a 'Dear CEO' letter published on 31 March 2020, the FCA noted that Government schemes to assist firms can be used to help firms plan how they will meet debts as they fall due and remain solvent in the immediate period, but Government loans cannot be used to meet prudential requirements. On 17 April 2020, the FCA released an updated statement reminding firms that capital and liquidity buffers are for use at times of stress. Firms should have sound management of their financial resources and plan ahead including maintaining up-to-date wind-down plans. Any steps taken should reduce the harm to consumers and firms should voice any capital requirement concerns with the FCA and, if applicable, the PRA. Firms should carefully consider if any discretionary distribution of capital is prudent in the current climate and the FCA made clear that non-bank lenders must appropriately implement IFRS9's standards to reasonably reflect the potential impact of COVID-19. On 4 June 2020, the FCA also announced that it will be asking around 13,000 firms to complete a financial resilience survey between 4 – 8 June 2020. On 10 September 2020, the FCA announced that it will be repeating this survey to understand the change in firms’ financial positions with time. On 6 November 2020, the FCA announced that it will be sending a tailored COVID-19 impact survey to firms which have notified for the Temporary Permission Regime and to firms which have a branch passport and may go into a supervised run-off. On 7 January 2021, the FCA published the results of its COVID-19 financial resilience surveys. The surveys were sent to solo-regulated firms to inform the FCA of the impact of COVID-19 on firms’ financial resilience. The results show that between February (pre-lockdown) and May/June (the first lockdown), firms across the sectors experienced a significant change in their total amount of liquidity. Three sectors saw an increase in liquidity between the two reporting periods: retail investments (8%), retail lending (8%) and wholesale financial markets (83%) while three other sectors saw a decrease in available liquidity: insurance intermediaries and brokers (30%), payments and e-money (11%) and investment management (2%). The FCA intends to email the survey, for the third time, to the relevant firms during the period of 13 January to 19 January 2021. Completion of the survey is mandatory.
- Impact on consumers - on 11 March 2020, the FCA published a webpage expressing their support and guidance for consumers. It warned consumers to be aware of potential scams, for example pensions transfers or high-return investment opportunities and made customers aware of their rights under insurance policies and ongoing efforts to ensure access to cash (see below). Importantly, the FCA provided practical guidance on how consumers can protect themselves against scams and seek further guidance, and emphasised that firms should treat customers fairly during this period. Firms should notify the FCA of the impact of any initiatives going beyond usual business practices to be provided the appropriate support. In a press release on 1 April 2020, the FCA provided further guidance to savers, urging them to carefully consider any decisions about their pensions and long term investments. The FCA will work with The Pensions Regulator (TPR) and Money and Pensions Services (MPS) to tackle any additional risks arising from the current uncertainty. In this regard, on 27 May 2020, the FCA, FSCS, TPR, MPS and other regulators have created a guide to help support pension saver. Further, in an updated webpage published on 19 May 2020, the FCA advised insurance customers facing financial difficulties to contact their insurer who should be able to provide a range of options such as payment deferrals, waiving fees, extending cooling off periods, etc.
On 18 January 2002, the FCA issued a report highlighting the many ways in which it works to protect consumers from investment harm by stopping and disrupting potentially harmful firms and activities. The report focuses on action it has taken during the first ten months of 2020, when many consumers found their finances under pressure as a result of the lockdowns and restrictions in light of COVID-19. On 11 February 2021, the FCA released its findings from the latest Financial Lives survey (FLS), an extra survey it ran in October 2020 in order to understand the impact of the pandemic on the financial situation of consumers. According to the October survey, 27.7 million adults in the UK have characteristics of vulnerability such as poor health, low financial resilience or recent negative life events. Having one of these characteristics means that these consumers are at greater risk of harm. The figure is up 15% since the FCA completed its FLS in February.
- Co-operation between regulators - on 9 February 2021, the FCA published an update on the BoE's and the FCA's memoranda of understanding on the supervision of market infrastructure and payment systems (MoU). The BoE and the FCA held a consultation with financial market infrastructures, seeking feedback on how the BoE, the FCA and the Payment Systems Regulator had co-operated during the COVID-19 market events. They concluded that the MoU’s arrangements for co-operation remain effective.
- FCA's approach to credit markets - on 13 October 2020, Nisha Arora, the Director of Consumer and Retail Policy at the FCA, gave a speech on the FCA regulation of consumer credit during the pandemic. The FCA's focus has been on ensuring consumers can afford credit, and if consumers are unable to repay, that they are treated fairly. On 4 November 2020, Jonathan Davidson, the Executive Director of Supervision – Retail and Authorisations at the FCA, delivered a speech on the FCA’s priorities for the credit market. Mr Davidson stated that, due to COVID-19, there may be further drops in employment and growth, adversely impacting consumers in the credit markets. It is therefore crucial for the FCA to make clear its expectations around forbearance, the operational challenge for firms to overcome, the importance of vulnerability; and the future direction of the industry. The outcomes that the FCA would like to achieve include:
- customers to get the time and advice needed to get a repayment plan that is suitable for their individual circumstances
- reasonable and sustainable repayment plans
- firms responding to the particular needs and challenges facing vulnerable customers.
On 2 February 2021, following a consultation process that started in November 2020, the FCA published its review into unsecured market regulation. Chaired by Christopher Woolard MBE and known as "the Woolard Review", this included an examination of the immediate effect of coronavirus on demand for unsecured credit and on the role of credit information. There were five key issues highlighted in the review:
- Certain credit products which are unregulated (such as "Buy Now Pay Later") need to be brought into regulation.
- Debt advice provision will be in greater demand due to the economic effects of the pandemic, requiring access to long-term funding for free debt advice providers and fees for Debt Relief Orders should not prevent the poorest in society from accessing the debt help that they need.
- Consistency of approach across firms for forbearance and an "outcomes-focused" approach to regulating credit products, to include conduct throughout the lifetime of a product and not just its affordability, should be brought about for the good of consumers and firms.
- There is a need for greater emphasis by the FCA, Government and other stakeholders on a "holistic approach" to key issues.
- There are "significant opportunities" to build a better credit information market to the benefit of consumers and lenders.
- Financial relief for customers – on 9 April 2020, the FCA confirmed the implementation of temporary financial relief measures for customers facing a financial impact from COVID-19. The measures, which applied from 14 April 2020 were introduced in a series of guidance covering overdraft, credit cards (and other revolving credit), personal loans, buy-now pay-later, pawnbroking, rent-to-own, motor finance and high-cost short-term credit. In the Annual Report and Accounts 2019/20 (see above), the FCA reported that over 3.4 million people took advantage of the payment breaks on mortgages and other credit products. The FCA also reported that firms have provided over 1.6m credit card and personal loan payment deferrals.
As the current series of guidance is due to expire on 31 October 2020, the FCA published new guidance on 30 September 2020 to ensure that firms provide tailored support for users who continue to face payment difficulties due to COVID-19. The new guidance applies both to consumers who have benefited under the current guidance but continue to face financial difficulties, as well as those whose financial situation may be newly affected by COVID-19 after the current guidance expires. The FCA also updated its dedicated page on financial relief for customers.
On 2 November 2020, the FCA published a statement announcing that the FCA will update the guidance in the light of the further Government restrictions in response to the COVID-19 pandemic, announced on 31 October 2020.
As a result of the increasing restrictions announced on 31 October 2020, on 4 November 2020, the FCA announced proposals to enhance the existing measures to provide further support to consumers impacted by COVID-19. The FCA proposed to extend payment deferrals and other support to personal loan, credit card, motor finance, rent-to-own, buy-now-pay-later and pawnbroking customers who are experiencing payment difficulties because of COVID-19. The FCA also launched a consultation on the enhanced support.
On 19 November 2020, the FCA confirmed updated guidance to firms setting out enhanced support that should be available to consumer credit customers experiencing payment difficulties as a result of COVID-19. The guidance covers users of personal loans, credit cards, store cards, catalogue credit, rent to own, buy now pay later, pawnbroking, motor finance and high-cost short-term credit. The guidance will come into force on 25 November but the FCA encouraged firms to start providing the enhanced support sooner. Under the current guidance, before 31 January 2021, firms should not terminate a regulated agreement or repossess goods or vehicles under the agreement that the customer needs, except in exceptional circumstances.
On 13 January 2021, the FCA proposed that consumer credit firms should be able to repossess goods and vehicles from 31 January 2021. However, repossession should only be a last resort, and subject to complying with relevant government public health guidelines and regulations, for example on social distancing and shielding. Importantly, firms will also be expected to consider the impact on customers who may be vulnerable, including because of the pandemic, when deciding whether repossession of goods or vehicles is appropriate. The closing date for comments on the FCA's proposal is 18 January 2021. On 27 January 2021, the FCA published updated tailored support guidance for consumer credit firms. The guidance confirms that the FCA's proposed changes on repossessions and largely expires on 31 July 2021.
The FCA published their key findings on forbearance over the pandemic on 1 April 2021. They found that: in general, customers have been able to get supports as they exit payment deferrals; no systemic issues were noted with firms' ability to meet the demand from customers seeking further help; the significant increase in inexperienced staff helping customers may lead to an increased risk of harm; and that a number of firms have accelerated plans to automate aspects of forbearance, which can be helpful, but that further enhancements such as signposting to non-digital support or recording of new vulnerabilities would be beneficial.
- Consumer debt advice – the FCA's rules already give firms the flexibility to act in the best interests of the customer. In response to the financial pressures' customers may face in the current climate, the FCA has provided greater flexibility "to customers in persistent credit card debt" by relaxing their rules on the suspension of credit cards. On 9 June 2020, the FCA published a statement on the Treasury's new debt advice services funding to assist people struggling with finances due to COVID-19. The service will be funded in part by the debt advice levy and the FCA will consult on collection of the levy in due course.
- Safeguarding customer funds – on 9 July 2020, the FCA published temporary finalised guidance for payment and e-money firms on strengthening prudential risk management and arrangements for safeguarding customers' funds in the light of COVID-19. The guidance also sets out the FCA's expectations of firms to put in place more robust plans for winding down, so that customer funds can be returned in a timely manner. The FCA aims to conduct a full consultation later in 2020/21 on changes to its payment services approach document. On 9 July 2020, the FCA also published a 'Dear CEO' letter to payment services firms and e-money issuers setting out its expectations for them to prevent consumer harm by ensuring regulatory compliance in the following six key areas: (i) safeguarding, (ii) prudential risk management, (iii) financial crime, (iv) financial promotions and consumer communications, (v) governance and oversight and (vi) records management and reporting. The FCA also stated that they may ask firms to demonstrate their compliance with the regulations.
- Disclosure – on 20 August 2020, the FCA published its Regulation round-up newsletter for August 2020, in which they discussed the disclosure of firms during COVID-19. The FCA has been monitoring and evaluating the disclosure of firms, and it hopes that firms build on what they have achieved and continue to design innovative disclosure that facilitate consumer understanding.
- Mortgages – the FCA is liaising with the industry on the approaches mortgage providers may take to support consumers, for instance lenders should provide a payment holiday of up to 3 months with no resulting additional fee or charge, and has provided guidance for firms. On 2 June 2020, the FCA published its final updated guidance for firms on mortgages outlining the options firms will be required to provide customers coming to an end of a payment holiday and information for consumers. The guidance came in force on 4 June 2020 and expired n 31 October 2020. On 28 July 2020, the FCA published a statement on mortgage prisoners and a consultation paper with proposals to support some consumers in the mortgage market. The consultation paper sets out in more detail the FCA's proposals to tackle potential harms that may impact borrowers affected by COVID-19. The consultation closed on 8 September 2020.
On 26 August 2020, the FCA published draft guidance setting out the next stage of support for mortgage borrowers. The guidance is to ensure firms provide support to mortgage borrowers who have benefitted from payment deferrals under the previous guidance and who continue to face financial difficulties, as well as those whose financial situation may be newly affected by coronavirus after the current guidance ends. On 14 September 2020, the FCA finalised the additional guidance and this applies from 16 September 2020. The FCA will keep the guidance under review and if circumstances change significantly, consideration will be given to any further measures that may be needed to support consumers during the ongoing pandemic. In the Annual Report and Accounts 2019/20 (see above), the FCA highlighted that firms have provided over 1.8m mortgage payment deferrals for those affected by COVID-19. In a speech by Jonathan Davidson, the Executive Director at the FCA, on 8 October 2020, he stated that the FCA will move away from the ‘crisis’ approach and focus on providing tailored support, especially to borrowers that are most at risk of harm, or who face the greatest financial difficulties.
On 31 October 2020, the FCA published a statement announcing that the FCA will update the guidance on mortgages in the light of the further Government restrictions in response to the COVID-19 pandemic, announced on the same day.
An Insight's (a research project by the FCA) article published on 16 November 2020 states that, due to COVID-19, access to the the mortgage market has been reduced for those in need of a high loan-to-value loan, with such products becoming fewer in number and their costs rising. First time buyers and those with limited savings have seen their options contract. Should the trend continues, it risks widening the gap between established homeowners and those hoping to become property owners, between younger and older generations.
On 17 November 2020, the FCA confirmed its updated guidance on the enhanced support that should be available to mortgage borrowers experiencing payment difficulties as a result of the COVID-19 pandemic. The FCA published two sets of finalised guidance, which update the FCA's guidance published in September 2020. The two sets of finalised guidance are (i) the mortgages and coronavirus: payment deferral guidance; and (ii) mortgages and coronavirus: tailored support guidance. The guidance will be fully in force from 20 November 2020, although the FCA encouraged firms to start providing the enhanced support sooner.
Under the current guidance, firms should not enforce repossessions of properties before 31 January 2021 except in exceptional circumstances, such as a customer requesting that proceedings continue. On 13 January 2021, the FCA proposed extending the guidance so that firms should not enforce repossessions before 1 April 2021. The closing date for comments on the FCA's proposal is 18 January 2021. On 27 January 2021, the FCA published updated tailored support guidance for mortgage firms. The guidance confirms that the FCA's proposed changes on repossessions, i.e. mortgage firms should not enforce repossessions before 1 April 2021, except in exceptional circumstances.
On 25 March 2021, the FCA's finalised guidance was published. This guidance sets out that from 1 April 2021 subject to any relevant government rules which prevent enforced repossessions for public health reasons, firms taking steps to enforce repossession of properties should only do so as a last resort in accordance with FCA rules, updated guidance and normal legal processes.
- Motor insurers – in response to the Department of Transport's six months extension of the MOT expiry (where MOT was due between 30 March 2020 and 31 July 2020), the FCA, on 30 June 2020, stated that it expects motor insurers to continue to provide cover for consumers' car, motorcycle or van insurance due to their temporary situation including renewals. On 22 September 2020, the FCA published the final report of its market study into the pricing of home and motor insurance taking into consideration the impact of COVID-19.
- Withdrawals from restricted access accounts – the FCA updated its webpage on 5 May 2020 setting out its expectations of firms handling requests from customers to withdraw funds from restricted accounts. The FCA expects firms to treat customers fairly, communicate effectively and consider the needs of vulnerable customers. It does not, however, expect firms to offer access to all customers or unlimited access to funds but rather to consider the impact of COVID-19 on an individual basis.
- Support for borrowers and SMEs – in a letter to the Treasury Select Committee from the FCA published on 21 May 2020, the FCA described its package of support for borrowers and SMEs. The letter address four key areas:
- the FCA's rules providing temporary financial relief for customers affect by coronavirus including, how customers will avail themselves of the relief and whether the unwinding of the measures will not cause consumers difficulty at the time
- the FCA's work to determine what will be needed after the initial three-month period of temporary financial relief
- whether the interventions to date have been sufficient to ensure the fair treatment and protection of vulnerable customers
- clarification on the goals of the unit for small businesses to co-ordinate its work on small business issues, and what the unit has achieved to date.
On 29 September 2020, the FCA published its Annual Report on the Regulatory Perimeter that determines which activities require authorisation and what level of protection consumers can expect for the financial services and products they purchase.
The report noted that the pandemic brought significant challenges to the financial position of SMEs due to loss of revenue and disruption of cashflows. Many SMEs have relied on borrowing, both from the Government’s BBLS and CBILS, and from other lenders. Lending under BBLS and CBILS is of unprecedented scale, with approximately £48bn lent through the scheme in Q2 2020. Lending under both schemes is largely unregulated, although CONC 7 (Arrears, default and recovery (including repossessions)) does apply to the collection of a number of BBLS loans. While the FCA is not responsible for designing and operating the schemes, the FCA has worked closely with the Government in the implementation of these schemes and will continue to work with the Treasury as it develops the approaches to collections and recovery activities relating to scheme loans.
On 4 December 2020, the FCA published a consultation to consult on its proposed guidance for firms that will be providing Pay as You Grow (PAYG) options under the BBLS. The proposed guidance aims to help firms understand how they can use and offer PAYG options in a manner compliant with the FCA's Principle 6 (treat customers fairly) and CONC 7. In particular, the proposed guidance aims to detail how firms can (i) use and offer PAYG options in a manner compliant with CONC 7; (ii) recognise vulnerability and respond to the needs of vulnerable customers; and (iii) assist borrowers who need debt advice. Where CONC 7 does not apply to debt collection under BBLS, firms are expected to use chapter 5 of the proposed guidance for business customers. The consultation will be closing on 18 December 2020. On 26 January 2021, the FCA published finalised guidance on BBLS for firms using PAYG. The FCA has clarified the guidance in respect of:
- firms' obligations under CONC 7.3.4 to provide additional support beyond PAYG options where appropriate to customers in financial difficulty or vulnerable customers
- firms identifying customers in financial difficulty
- enabling customers to opt out of automated journeys involving the provision of PAYG options.
The guidance will come into force on 27 January 2021 and remains in force unless the FCA varies or revokes it.
- Lending to SMEs - the FCA published a 'Dear CEO' letter on 15 April 2020, to banks on lending to SMEs. The letter acknowledges the efforts by the banking sector in accommodating the Government initiatives, in particular the CBILS. While the activity of lending to a SME sits outside the FCA's scope, the SMCR defines the responsibilities and accountability of Senior Managers in banks and their responsibilities in the activity of lending to SMEs. In the letter, the FCA also announced the establishment of a new small business unit to coordinate the management of small business issues including: ensuring regulated firms are providing adequate support, gathering market information on their treatment by financial services firms, and responding to any issues identified. In a subsequent 'Dear CEO' letter, dated 28 April 2020, the FCA stated that it expects financial firms to continue to provide strong support to customers and ensure fair treatment of corporate customers preparing to raise equity finance. If banks fail to meet their obligations to treat customers fairly and act in the best interests, distort competition, undermine market confidence or call into question a firms and individuals integrity, they risk breaching the FCA's rules and principles. The FCA will not hesitate to take action and it urged firms to review the current systems and controls.
- Insurance products – Mr Woolard said, "[w]e expect all firms to be clear and not misleading whenever they communicate and be fair and professional in how they deal with their customers." Insurance providers should make consumers aware of the scope of their cover and any exemptions, with information "on firms' websites in a clear, concise way". The FCA has provided specific information for consumers and expectations of firms. Further, the FCA published a 'Dear CEO' letter on 15 April 2020, to insurance firms reminding them of the essential service they provide to customers and the need for clear, accurate and timely information being provided. It encouraged firms to assess and settle claims quickly, including part payment of a claim, and reminded firms of the option to use the Financial Ombudsman Service (FOS) for faster decisions in some cases. On 29 June 2020, the FCA provided further guidance on handling consumer claims and refund requests. Insurers must treat customers fairly and take into account that this a stressful time for customers. The FCA has stated that regulated firms can agree a convention to work together to settle claims efficiently without having a negative impact on consumers. Further, on 31 July 2020, the FCA published a consultation aimed at credit and debit card firms and insurance providers, with guidance on handling cancellations and refunds enquires and claims from consumers. The FCA requested all comments by 13 August 2020. The FCA considered the feedback and published its final guidance in October 2020, which is effective until 2 April 2021. On 12 February 2021, the FCA published a consultation to consult on the guidance that would take effect from 2 April 2021. The consultation closes on 26 February 2021.
- Insurance intermediaries - on 4 September 2020, the FCA published a 'Dear CEO' letter addresses to personal and commercial insurance intermediaries. The FCA re-emphasised the key messages in a statement updated on 17 April 2020, namely that firms should have sound management of their financial resources and plan ahead including maintaining up-to-date wind-down plans. As many of the key harms that the FCA has seen in this sector are directly linked to poor governance and controls, the FCA will prioritise supervisory work against: (i) ineffective governance; (ii) incentive arrangements that do not support a positive conduct culture; and (iii) business models which provide poor control over sales and renewals and conflicts of interest including through appointed representatives.
- Business interruption (BI) insurance – on 1 May 2020, the FCA announced its intention to seek a judgment from the courts to resolve some contractual uncertainty in BI insurance policies. The resulting BI insurance test case was brought before the High Court with the eight day hearing ending on 30 July 2020 (see our detailed article here). The FCA also provided some general guidance and expectations of general insurance firms. It expects them to still meet their obligations when handling claims and any complaints. In the judgment published on 15 September 2020, the High Court found in favour of the arguments advanced for the policyholders by the FCA on the majority of the key issues. Following the publication of the judgment, the FCA has updated the page dedicated to business interruption insurance and published a further update on the appeals process on 2 October 2020 (see our article and webinar for a detailed analysis of the judgment). In a 'Dear CEO' letter published on 19 September 2020, the FCA stated that it is critical that the judgment results in insurers paying valid and successful claims in full at the earliest possible date to support business and consumers during the current situation. The FCA further added that where insurers are not meeting the expectations set out in the judgment, the FCA will use the full range of regulatory tools and powers to ensure that they do so. On 2 November 2020, the FCA updated its webpage to announce that the Supreme Court has granted permission to appeal the High Court judgment of the test case. The appeal has been heard from 16 to 19 November 2020. The FCA updated its webpage and published the draft transcripts of the appeal hearing. The FCA stated that Lord Reed, President of the Supreme Court, recognised the importance of an early judgment for the businesses affected and the Justices will try and provide judgment as quickly as possible. On 11 December 2020, the FCA published a short consultation on guidance to help policyholders, insurers and insurance intermediaries in judging how the presence of COVID-19 in a particular area may be proved. The FCA would like to issue the guidance as soon as it has the Supreme Court's judgment. The draft guidance builds on the High Court’s judgment and is intended to ensure that the process of proving the presence of COVID-19 is made as simple as possible for eligible policyholders. This will enable them to receive claim payments as early as possible. The closing date for comments on the draft guidance is now closed but for supplemental comments relating to the Supreme Court's judgment handed down on 15 January 2021, the deadline has been extended to 22 January 2021.
The Supreme Court's judgment unanimously dismissed the insurers’ appeals and allowed all four of the FCA’s appeals, in two cases on a qualified basis (see our comments on the judgment here). The FCA updated its webpage dedicated to the case and also issued a press release on the judgment. The FCA stated that the judgment does not determine how much is payable under individual policies but provides much of the basis for doing so. More importantly, this means that claims under a substantial number of similar policies in the wider market may now be successful. The FCA further explained that it will publish a set of Q&As for policyholders to assist them and their advisers in understanding the test case. It will also publish a list of BI policy types that potentially respond to the pandemic. On 22 January 2021, the FCA updated its webpage on its business interruption (BI) insurance test case and published a 'Dear CEO' letter on expectations of insurers and a table summarising the outcome of the test case by policy type in the representative sample of 21 policy wordings. On 29 January 2021, the FCA published a business interruption insurance policy checker and general FAQs for policyholders following the Supreme Court's judgment in the FCA's business interruption insurance test case. The checker and the FAQs are to assist policyholders to find out whether their insurance policy may cover business interruption losses caused by COVID-19 as a result of the FCA’s test case and if so, how to make a claim and what to claim for. On 15 February 2021, the FCA updated its webpage, publishing the declarations submitted by the FCA (and the other parties to the test case) to the Supreme Court. These declarations will be the culmination of the judgments in the test case and will declare whether the policies in the representative sample potentially cover business interruption losses arising from the pandemic.
- Non-damage business insurance – on 3 August 2020, the FCA published a statement on non-damage business insurance settlements and deductions in relation to Government support. The FCA sets out the factors an insurer must consider when assessing the appropriateness of making deductions of the Government support the policyholder received. It expects insurers to consider these on a case-by-case basis and deal with non-damage business insurance claims promptly and fairly.
- Product value (insurance products) – the FCA published its final guidance on 3 June 2020 for insurers and insurance intermediaries to consider the value of their products. The guidance sets out the FCA's expectations of what firms should be doing to identify material issues with their product value which, due to COVID-19, provides little or no utility to customers and not just where claims are no longer possible, and their ability to deliver good customer outcomes where these need to be reassessed in light of coronavirus. The guidance comes into immediate effect and firms have until 3 December 2020 to review their product lines. On 30 October 2020, the FCA published a statement reminding insurance firms to conduct the review by the due date.
- Insurance and premium finance firms – on 14 May 2020, the FCA published its guidance for insurance and premium finance firms in dealing with customers in temporary financial difficulty. Firms should re-assess the risk profile of the consumer, consider if there are better suited alternative products that can be offered, work with the consumer to avoid the need for cancellation of necessary cover and waive associated fees including cancellation fees. The measures come into force on 18 May 2020. On 11 August 2020, the FCA announced its extension of these temporary measures and published the updated guidance which made some changes, based on market feedback, to the initial measures to clarify its expectations when firms are required to send information to customers under the Consumer Credit Act 1974. Firms should continue to consider what options they can offer customers including premium reductions, offering an alternative product, waiving fees and payment deferrals. The FCA also published the COVID-19 Premium Finance (No 2) Instrument 2020 (FCA 2020/39) on 6 August 2020, amending rules in the Consumer Credit sourcebook (CONC) to give effect to the updated guidance.
On 16 October, the FCA published draft guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19 after 31 October 2020. The guidance was finalised on 30 October 2020.
On 12 January 2021, the FCA updated its webpage on insurance and COVID-19 to include a section on claims relating to floods and storms. The section outlines some of the different steps insurers have taken to prepare for the impact of COVID-19 on the seasonal increase in flood and storm-related claims, for example, where customers require immediate assistance, it is critical they can contact their insurer quickly. Regardless of the challenges from COVID-19, the FCA expects firms to handle storm and flood claims promptly and fairly, ensuring that customers do not face barriers or delays when making a claim. Firms should provide customers with clear communications about the information they need to support their claim and keep customers informed on progress.
- Financial system to support recovery – in a speech on 16 June 2020, Charles Randell, Chair of the FCA and PSR, discussed the need to reassess our approach to consumer debt, high risk retail investments and financial exclusion to support the recovery from COVID-19. Consumer and business debt are becoming unsustainable and COVID-19 has reinforced Mr Randell's concerns about risky investments for retail customers.
- Corporate Insolvency and Governance Act 2020– in a statement published on 14 May 2020, the FCA discussed the new insolvency and corporate governance measures designed to help businesses weather COVID-19. The measures came into force on 26 June 2020 as the Corporate Insolvency and Governance Act 2020 (Act). The Act introduces both permanent and temporary amendments to the current UK insolvency regime with certain of the temporary measures taking effect from 1 March 2020. Some measures, for example the company moratorium (during which legal proceedings cannot commence without permission of court) and the temporary suspension of wrongful trading provisions, will not apply to all financial services firms including banks, investment firms, insurers, payments and e-money institutions and certain market infrastructure bodies. The new Restructuring Plan is available to all firms through the appropriate safeguards. To read more about the Act, please see our detailed article here.
- Resolution Strategy – the FCA Board Minutes were published on 5 June 2020 for a meeting held on 30 April 2020, and these reported the establishment of the Recovery and Resolution Division. The Board considered the impact of COVID-19 on firms prudentially regulated by the FCA and found that prompt and pre-emptive supervisory intervention was essential to protect, in particular, client assets, segregated funds and unpaid redress. Thus, the Division aims to blend the right skills, achieve scale and focus efforts.
- Money and Pensions Service (MaPS) and the Devolved Authorities (DA) – the FCA published a consultation paper on 5 August 2020, on debt advice levy rates for 2020/21 to provide additional funding for the MaPS and the DA. The additional funding is required to maintain capacity given the expected increase in requirements for debt advice.
- Culture - On 26 November 2020, Jonathan Davidson, the Executive Director of Supervision - Retail and Authorisations at the FCA, delivered a speech on the business of social purpose. He stressed that culture remains a key area of focus for the FCA. During the COVID-19 crisis, supporting customers and colleagues is a purpose that has empowered staff to make decisions quickly and consistently. He was also struck by the improvement in the frequency and way that leaders have been engaging with their employees. To tackle the challenges brought by the COVID-19 crisis, firms would require purposeful leadership to introduce strategic and cultural change. Furthermore, he stated that social purpose increasingly matters to consumers, employees and shareholders as people want to engage with, work for and invest in, firms that are purposeful.
On 27 November 2020, the FCA published the transcript of its webinar on leading healthy cultures in a post COVID-19 world. During the webinar held on 11 September 2020, Jonathan Davidson hosted leaders from academia and industry to discuss lessons learned from the initial period of lockdown, how leadership roles and styles may have evolved, and what leadership skills are needed to navigate through and out of a crisis.
- Senior Managers and Certification Regime (SMCR) - on 3 April 2020, the FCA and PRA set out their expectations relating to the SMCR for solo-regulated and dual-regulated firms, which are summarised in our special two-part alert: Part 1 (solo-regulated firms) and Part 2 (dual-regulated firms). Following the announcement by HM Treasury to delay the certification deadline for solo-regulated firms from 9 December 2020 to 31 March 2021, on 17 July 2020, the FCA published a consultation paper seeking views on:
- extending the date the Conduct Rules come into force, for staff who are not Senior Managers or Certification Staff
- extending the date by which relevant employees must have received training on the Conduct Rules
- extending the deadline for submission of information about Directory Persons to the FS Register
- amending references in its rules to the deadline for assessing Certified Persons as fit and proper.
These changes were proposed to give firms significantly affected by the COVID-19 pandemic time to fully and properly implement the Certification Regime and to train staff effectively in the Conduct Rules.
On 28 October 2020, the FCA published a policy statement (PS20/12) confirming the above changes.
Dual-regulated firms must submit their Directory Persons data by no later than 13 November 2020. This data will be published on the FS Register from 23 November 2020. Further details on the submission process for solo- and dual-regulated firms can be found on the FCA's webpage on the Directory of certified and assessed persons.
On 18 December 2020, the FCA published updated information regarding the additional flexibility that it announced in April for solo-regulated firms that were impacted by COVID-19 (mentioned above). In the FCA's view, as firms have adapted to the impact of the pandemic over the past few months, it expects firms’ application of the SMCR rules to return to normal. From 7 January 2021, firms are expected to notify the FCA when there are significant changes to Statements of Responsibilities using Form J – this does not apply to changes made before 7 January 2021. In addition, the modification by consent regime (which extends temporary absences from 12 weeks to 36 weeks) will come to an end after 30 April 2021.
- Approved persons regime (APR) – the FCA published a statement on 30 June 2020 setting out its expectations to help benchmark administrators and firms using Appointed Representative (AR) arrangements apply the APR during the COVID-19 pandemic (in addition to their expectations relation to the SMCR above). The FCA issued a direction relating to a modification by consent to the 12-week rule, which will allow temporary arrangements for controlled functions for up to 36 weeks. Additionally, furloughed staff, unless leaving their post permanently, can retain their approval during their absence and will not need to be re-approved by the FCA. In this regard, the FCA does not expect firms to notify it under Form D of the temporary arrangements set out in its statement but, it does expect the arrangements to be clearly documented internally.
- Continuing Professional Development (CPD) – on 27 May 2020, the FCA published a webpage in which it stated that firms, in exceptional circumstances, will be allowed to defer individuals' uncompleted CPD hours to the next CPD year in the light of the COVID-19 pandemic. The FCA still expects individuals to stay up to date with developments and firms will need to consider various circumstances. This applies to CPD years ending before 1 April 2021.
- Professional qualification exams – while firms are still expected to ensure that all employees have the relevant qualifications, on 21 April 2020, the FCA stated that the obligation to ensure an employee has attained the appropriate qualifications within the required 48 months, pursuant to TC 2.2A.1R, will be extended by an additional 12 months if the examinations were cancelled or postponed by the provider or the employee. The FCA will adopt this approach until 31 October 2020 and firms will need to record their reasons for granting any extension to an employee.
- Key workers in financial services - following the UK Government's advice on maintaining educational provisions for key workers, both the FCA and PRA have provided guidance on the roles that may be considered essential for the provision of financial services to avoid the disruption of the "real economy or financial stability". The regulators have recommended that the Chief Executive Officer SMF1 is accountable for ensuring an adequate process so that only roles meeting the definition of 'key financial workers' are designated. Where a firm does not have a SMF1, the most relevant member of the senior management team should be responsible for this process. The FCA also published a statement on 27 March 2020, stating it was the responsibility of the relevant Senior Manager, or equivalent person, to identify which employees are unable to perform their jobs from home and have to travel to the office or business continuity site. On 22 September 2020, the FCA published a statement urging firms to follow Government advice on working from home until notified otherwise. The FCA also updated statements on the steps firms should take in identifying key workers where required; and the responsibilities of senior managers. The FCA expects senior managers to take account of changes in the applicability of local or national lockdown restrictions and to review and update the working arrangements of employees continuingly. On 9 November 2020, the FCA updated its statement and recommended that, for financial services firms, the Chief Executive Officer Senior Management Function (SMF1) is accountable for ensuring an adequate process for following and adhering to government guidance. For firms that do not have an SMF1 Chief Executive Officer, this will be the most relevant member of the senior management team.
- Digital sandbox – the FCA published an updated statement on 16 July 2020, announcing its plans to bring forward a digital sandbox. The proposed digital sandbox, in collaboration with the City of London Corporation, will provide innovative firms enhanced regulatory support for the challenges posed by COVID-19. The FCA sought expressions of interest to participate in a DataSprint event in July/August 2020. The FCA will provide further information on their webpage in due course and invites stakeholders to express their interest. Applications to the digital sandbox will open later in the summer. In a speech published on 21 September 2020, Christopher Woolard said that the FCA’s regulatory sandbox should be expanded in terms of scale and ambition to handle occasional very large tests supported by more flexible authorisations powers, if needed.In seeking applications for the pilot, the FCA identified three key areas as particular areas of importance, namely:
- preventing fraud and scams
- supporting the financial resilience of vulnerable consumers
- improving access to finance for small and medium-sized enterprises.
On 23 November 2020, the FCA updated its webpage on the Digital Sandbox pilot, confirming that 30 businesses had been chosen to take part in the pilot. Further details can be found on the pilot's webpage.
- Information security – the FCA updated its webpage on 6 May 2020 to provide guidance to firms on information security. The FCA noted the increase in cyber criminals, and the related disruption of essential services and potential harm to consumers and market integrity. While alternative ways of working from home are required for business continuity, the FCA expects firms to ensure adequate controls are in place and prioritise information security.
- Financial crime – on 6 May 2020 the FCA published guidance on firms applying their systems and controls to prevent the increase in financial crime during the coronavirus. In light of the operational challenges from COIVD-19 firms should change their risk appetite, and while this may involve the need to re-prioritise or reasonably delay some activities firms must not weaken their controls and ensure there is a clear plan to return to the regular review processes.
- Market trading and reporting – the FCA expects firms to consider the broader control environments in these new working circumstances and satisfy ordinary recording and reporting standards and requirements. While the FCA understands there may be difficulties in doing so, firms should consider steps they could take to mitigate outstanding risks and liaise with the FCA as necessary. On 8 January 2021, the FCA updated its webpage section on market trading and reporting in light of the extensive duration of working from home arrangements in response to the pandemic. The FCA stated that it expects firms to record all relevant communications (including voice calls) when working outside the office. Firms should continue to take all steps to prevent market abuse risks, such as enhanced monitoring, or retrospective reviews. Firms should also submit regulatory data without undue delay. A joint statement from the FCA and PRA updated on 27 January 2021 reminds firms that the Market Abuse Regulation (MAR) remains in force and companies are still required to fulfil their obligations concerning inside information as soon as possible unless they have a valid reason to delay disclosure under the regulation. Additionally, firms must continue to assess carefully what information constitutes inside information, recognising that the global pandemic and policy responses to it may alter the nature of information that is material to a business’s prospects.
On 11 January 2021, the FCA published issue 66 of Market Watch, its newsletter on market conduct and transaction reporting issues. Issue 66 sets out the FCA's expectations for firms on recording telephone conversations and electronic communications when alternative working arrangements are in place, including increased homeworking. The FCA expects firms to continue to comply with the recording obligations in its Senior Management Arrangements, Systems and Controls sourcebook (SYSC 10A). Among other things, firms need to ensure that, if unmonitored or encrypted communication applications (such as WhatsApp) are used for in-scope activities on business devices, they are recorded and auditable.
- Market trading (warning for UK investors) - On 29 January 2021, the FCA issued a statement, warning that buying shares in volatile markets is risky and one may quickly lose money. These losses are unlikely to be covered by the Financial Services Compensation Scheme.
- Regulatory reporting - on 10 July 2020, the FCA published an updated webpage with further temporary measures extending the submission deadline (by 2 months) for certain regulatory returns up to and including 30 September 2020. In addition, the FCA has waived the administrative fee for late returns for SMEs (paying less than £10,000 in fees and levies in 2020/21) until 30 September 2020. On 5 February 2021, the FCA updated its webpage, stating that due to the challenges faced by firms and their auditors, the FCA will allow flexibility in the submission deadline for FIN-A (annual report and accounts). Firms may apply a two-month extension to the deadline for submissions due up to and including 31 July 2021. However, if firms can submit FIN-A on time, then they should do so. In any event, firms should submit FIN-A as soon as they are reasonably able to, and no later than 30 September 2021.
- Reporting obligations (audit firms) – the FCA published a letter addressed to audit firms on 10 August 2020. The FCA reminded audit firms of their reporting duties and obligations, as it highlighted the importance of both public and private assurance reports in the current economic climate. The FCA also set out the guidance is has already published to provide clarity and assistance for example, FG20/1: Assessing adequate financial resources.
- Mutual societies – On 28 October 2020, the FCA published its updated webpage on its responsibilities to mutual societies and its webpage on mutual societies' annual returns and accounts. The FCA noted that some societies are still experiencing delays in producing annual returns and accounts due to COVID-19 and confirmed that the FCA will not take any action before 31 October 2020 on any delayed submission where the delay is three months or less. For annual returns and accounts due for submission by 30 April 2021, the FCA will not take any action on delayed submissions where the delay is three months or less.
- Payment Accounts Regulations (PAR) reporting – on 7 May 2020, the FCA extended the deadline to receive the reporting submissions under the PAR for the reporting period 1 March 2018 to 29 March 2020, until 30 June 2020 (originally 30 April 2020).
- Supervising reporting under the Securities Financing Transactions Regulations (SFTR) – following a statement by the European Securities and Markets Authority (ESMA), the FCA updated its SFTR webpage on 26 March 2020. The FCA will not prioritise supervision of the SFTR reporting obligations between 13 April 2020 and 13 July 2020 (including securities financing transactions under the Markets in Financial Instruments Regulation). The FCA has also concurred with the recent statement from the ESMA (as revised on 26 March 2020) regarding upcoming changes to the tick size regime for certain firms. Consistent with its approach in the market during this period, the FCA will "not prioritise supervision of the new requirements at this time" and "expect[s] firms to focus on minimising the potential for operational disruption."
- Amendment to IFRS 16 – on 18 August 2020 the FCA published a statement, including Q&As, on accounting for lease modifications pursuant to International Financial Reporting Standard (IFRS) 16. Following a statement published by ESMA on 21 July 2020 on the proposed IFRS 16 amendments, the FCA will permit temporary relief for issuers who choose to use the amended IFRS 16 rather than the current IFRS 16 adopted by the EU. The temporary relief applies to certain listed companies, and is subject to the following two conditions: (1) issuers must apply the amended accounting treatment to applicable transactions, and (2) issuers must disclose the use of the amendment in the notes to the financial statements. Further, on 18 August 2020 the Financial Reporting Council released a statement, in line with the FCA's statement, confirming it will not pursue regulatory action where issuers take advantage of the provisions contained in the amended IFRS 16.
- Short selling – against the background of a series of temporary short selling prohibitions brought in by certain European regulators, the FCA published a statement on 23 March 2020 in which it announced that it had decided not to introduce short selling bans as it had no evidence that short selling had been the driver of recent market falls. The FCA said "[w]e will continue to co-ordinate with our international partners and take all actions within our power where necessary to safeguard orderly markets." Nonetheless, in line with an ESMA decision, the FCA has amended its threshold for notifying net short positions from 0.2% to 0.1% of issued share capital and confirmed on 31 March 2020 that the required systems changes have now been made. On 19 May 2020, the FCA announced that there are no short selling prohibitions or restrictions currently in place following the expiration of such restrictions in other Member States.
- Property fund suspensions – the FCA agreed with the decision of managers of open-ended commercial real estate (CRE) funds to temporarily suspend dealing. "In such situations, a fair and reasonable valuation of CRE funds cannot be established," and continued dealing will not in the best interests of fund investors, the FCA said in a statement.
- LIBOR transition – in a statement made on 25 March 2020, the FCA, BoE and Working Group on Sterling Risk-Free Reference Rates (RFRWG) discussed the impact of COVID-19 on the transition from LIBOR to SONIA. The current assumption is that LIBOR will still be phased out by the end of 2021 and in a subsequent joint statement published on 29 April 2020 this was reiterated. To ensure stability in the credit markets during the transition, the RFRWG recommends that by the end of Q3 2020 lenders should be able to offer non-LIBOR products, by the beginning of Q4 2020 any LIBOR-referencing loan products should have clear conversion contractual arrangements and all new LIBOR-referencing products that expire after 2021 should cease. Additionally, the FCA, BoE and RFRWG will continue to assess the impact of COVID-19 and provide further updates in due course.
- Business loans pursuant to the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Bank Loan Scheme (BBLS) - the FCA has stated that in assessing the creditworthiness of a customer applying for a regulated credit agreement for business purposes, a lending firm may take a range of income and expenditure information into account. In an updated statement on 4 May 2020, the FCA provided further guidance on the relationship between their rules and the loan schemes, as well as managing financial crime by relaxing the customer due diligence requirements (see our detailed business loan support insight article here and further Government guidance here). On the same day it also released correspondence between Mr Woolard and Caroline Wayman, Chief Ombudsman and Chief Executive of the FOS, discussing the approach to dealing with complaints concerning the CBILS and the BBLS.
- Business cooperation under competition – in a statement released by the FCA and PSR on 27 March 2020, the regulators confirmed they will take a consistent approach to their competition law enforcement activity in the financial services sector pursuant to the Competition Act 1998 and/or the Treaty on the Functioning of the European Union.
- Lloyd's of London market update – in a press release on 26 March 2020, Lloyd's confirmed that the market is in a strong position to weather the impact of COVID-19 and support its customers and business partners. On 14 May 2020, Lloyd's predicted it is set to pay out up to US$4.3 billion to customers and the overall cost to the global insurance industry is likely to be far in excess of any historical event. On 3 November 2020, the FCA published a 'Dear CEO' letter it has sent to Lloyd's and London market intermediaries and managing general agents. The letter sets out the FCA's view of the key risks of harm to customers and the markets firms operate in. One of the common themes in drivers of harm against which the FCA will prioritise its supervisory work is financial resilience and orderly wind-down. The FCA expects all firms to review any material developments, such as the COVID-19 pandemic, that could affect their business model.
- Client assets – on 6 April 2020, the FCA published a webpage relating to compliance with the Client Assets sourcebook (CASS). It provides guidance on, among other things, handling cheques, CASS audit reports, physical asset reconciliations, depositing client money, notification of CASS breaches, a firm's CASS classification and firms' delays to improvement projects.
- Communications to customers – the FCA published two webpages on 7 April 2020 providing guidance to firms on the financial advice they can provide to consumers. The FCA is concerned that some firms, that do not provide investment or life assurance advice, or pensions advice, may be contacted by customers seeking advice. In these circumstances it recommends that firms be prudent, consider the customers background information if appropriate, act in their best interests and communicate clearly and fairly. The FCA goes on to provide examples of communications that would not constitute personal recommendations, which can help firms develop their own approach, and provides risk factors in the current climate. Crucially, firms must avoid providing regulated advice and should consider referring customers to the appropriate advisers.
- Handling of complaints – the FCA published an updated webpage on 31 July 2020 clarifying their position of firms complaint handling. Handling complaints remains an important function and the FCA expects firms to prioritise the following: customers who have been offered redress should be paid promptly, prompt and fair resolution of complaints, and sending timely holding responses if necessary. Firms should, in particular, take account of vulnerable customers in these circumstances and maintain the quality of complaint handling. The FCA expects firms to cooperate with the Ombudsman Service and respond to requests for information in a timely manner. Claims management companies should also give firms extra time to give a final response to complainants before referring them to the FOS to handle the complaint. If firms are experiencing any difficulties, they should contact their supervisory contact or the FCA directly. On 20 October 2020, the FCA updated the webpage after a review. The FCA intends to review the webpage again by the end of April 2021 at the latest.
- Financial Ombudsman Service – The FOS published issue 154 of Ombudsman News on 28 October 2020. The issue features various COVID-19 related content, including the thoughts of Richard Thompson, the principal ombudsman and quality director, on the impact of COVID-19 on complaints from small and medium enterprises. He noted that the FOS received more and more complaints from SMEs on issues caused or affected by COVID-19, many of which are complaints about business interruption insurance. This is in line with the observation made in a previous Insight article, which states that the FOS has seen more than 3,500 complaints related to COVID-19 as of 25 August 2020. On 19 November 2020, the FOS published issue 155 of ombudsman news. The quarterly complaints data shows that the FOS continues to receive complaints arising from COVID-19, reflecting the wide-ranging impact of the pandemic on people's lives. On 20 November 2020, the FCA published letters with the FOS confirming the FOS's approach to assessing complaints arising from firms' acts or omissions during the COVID-19 pandemic. In a letter dated 16 November 2020, Sheldon Mills, the Interim Executive Director of Strategy and Competition at the FCA, sought confirmation from Caroline Wayman, the Chief Ombudsman and Chief Executive at the FOS, that in determining what is fair and reasonable in all the circumstances of the individual case, the FOS will continue to take account of the operational challenges faced by firms during this period, and the FCA’s revised expectations of what constitutes compliance with its rules, guidance and standards, as well as good industry practice at the time. By way of a letter dated 17 November 2020, Ms Wayman explained that in deciding what is fair and reasonable, the FOS must take account of the relevant law, regulators' rules, guidance and standards, codes of practice and what the ombudsman considers to have been good industry practice at the time. Ms Wayman further clarified that the FOS will continue to take account of the FCA's revised expectations of what constitutes compliance with the requirements. On 16 December 2020, the FOS published a consultation paper on its proposed plans and budget for 2021/22. Among others, the FOS is seeking views on:
- Pensions reforms – in its updated webpage, on 6 April 2020 the FCA stated that they expect firms to implement the rules on communicating certain pension information to consumers as soon as possible. While firms may be experiencing minor delays in implementing the rules, which came into force on 6 April 2020, any delay later than 31 May 2020 should be communicated to the FCA. Further, on 7 April 2020, the FCA published the COVID-19: Deferral of Commencement (Pension Transfers, Investment Pathways, Platform Switching, Access to Insurance) Instrument 2020 (FCA 2020/15), which delayed implementation of various other pensions related policies.
- Expectations for funds – the FCA published a webpage on 6 April 2020 with its rules and guidance on the operational and financial challenges funds are facing. The FCA has stated it does not have a supervisory concern about virtual general meetings although firms should consider their own arrangements and obligations to unitholders, agreed to accept electronic signatures on applications to authorise funds or approve changes to funds during this period and expects firms to ensure compliance with limits on value at risk. On 22 April 2020, the FCA also agreed to temporarily relief to certain fund managers and funds, by providing an extra two months to publish their annual reports and an extra month for half-yearly reports (the FCA must be notified to take advantage of this forbearance). On 9 September 2020, the FCA published an update stating that for funds with an annual or half-yearly accounting date: (i) on or before 31 August 2020, the temporary relief will remain in place; (ii) on or before 31 September 2020 (but after 31 August 2020), a one month's relief will be permitted where necessary; and (iii) after 30 September 2020, the temporary relief will expire and no extra time will be provided.
- Portfolio management services or holding retail client accounts with leveraged investments - in a 'Dear CEO' letter published on 31 March 2020, the FCA stated it will provide supervisory flexibility over the mandatory 10% portfolio depreciation notifications until the end of September 2020 (subject to certain client safeguards). On 30 September 2020, the FCA published a statement confirming a further 6-month extension (to 30 March 2021) and amending the extension of the previous flexibility regarding professional investors. For services offered to professional investors, from Thursday 1 October 2020, provided that firms have allowed professional clients to opt-in to receiving notifications, the FCA will not take action for breach of additional reporting obligations for portfolio management or contingent liability transactions (COBS 16A.4.3 EU).
- Non-discretionary investment service – in a 'Dear CEO' letter published on 12 August 2020, the FCA noted the increase in client money balances that firms have reported as clients rebalanced their portfolios to mitigate current market volatility. Accordingly, the FCA informed firms who provide non-discretionary investment service to consider, with their clients, whether it is in the clients' better interest to place these increased balances directly with the client's own current or savings account providers or held to facilitate further investment in the short term.
- Listed companies - for more information on listed companies including Market Abuse Regulation (MAR) announcement obligations, shareholder meetings and delays in corporate reporting and transactions notifications see our detailed insight article here. On 11 November 2020, the FCA published its Primary Market Bulletin No 31. The Bulletin has a dedicated section on COVID-19-related temporary policy measures on corporate reporting for listed companies. On 27 January 2021, the FCA and FRC updated their joint statement confirming that listed companies have an additional two months to publish their audited annual financial reports.
- Market abuse - on 12 October 2020, Julia Hoggett, the Director of Market Oversight at the FCA, delivered a speech on market abuse. She highlighted that whilst the fundamentals of the market abuse offences are constant, the ways in which the risk may manifest are not. The manner of surveilling for them must, therefore, also change. The FCA's expectation is that going forward, office and working from home arrangements should be equivalent. Firms are expected to have updated their policies, refreshed their training and put in place rigorous oversight reflecting the new environment, particularly regarding the risk of use of privately owned devices. Compliance teams, management and leaders throughout firms should consider how they can reiterate, and reinforce their expectations. Having a culture that minimises the risk of poor conduct taking place in the first place remains critical.
- Cross-border payments regulation – on 16 April 2020, the FCA updated its webpage to remind firms of its expectation that they comply with the currency conversion transparency requirements for both card-based transactions and credit transfer arising out of the revised Cross-border Payments Regulation, which applied from 19 April 2020. However, the FCA will adopt a reasonable approach to how it enforces compliance.
- Business plan – the FCA published its 2020/21 business plan on 7 April 2020. The business plan has a chapter dedicated to the FCA's priorities, objectives and actions in dealing with the COVID-19 pandemic. The FCA stated that, going forward, it will focus on ensuring efficient market functioning, protecting the vulnerable in society, minimising the impact of firm failure, tackling scams and ensuring consumers and small firms are fairly treated.
- Client identity verification - the FCA expects firms to continue to meet their verification obligations but can be flexible in how this is achieved (e.g. a firm can ask a client to submit a 'selfie' or video).
- Wet-ink signatures – on 20 April 2020, the FCA published a webpage stating that their rules do not explicitly require wet-ink signatures in agreements and that the FCA would accept electronic signatures for fund-related and mutual societies applications/forms. Firms should, however, consider the validity of electronic signatures as a matter of law.
- Best execution - in a 'Dear CEO' letter published on 31 March 2020, the FCA stated that firms should still be considering the various factors, venues or brokers used to achieve best execution. The FCA will not take enforcement action for a failure to publish RTS 27, RTS 28 and Article 65(6) reports before the end of June.
- Professional indemnity insurance for financial advisers – on 21 April 2020, the FCA stated that professional indemnity insurance (PII) cover remains available in the market and firms need to have PII policies in place to maintain operational resilience.
- Handling of post and paper documents – in a statement published on 13 May 2020, the FCA stated that it expects firms to comply with the requirement for post and paper-based processes and if firms are not able to comply they must notify the FCA. It also provided guidance for firms; for instance, they must try to ensure that customers are not disadvantaged by any delays, take steps to mitigate the impact of non-compliance, and use other methods to conduct a suitability assessment.
- Innovation Hub – the FCA continues to provide support innovative firms looking to launch financial services products and services meeting the criteria. It is particularly interested in firms who want to help people and the financial systems they rely on deal with the effects of the coronavirus outbreak.
- Open access regime – in an updated statement published on 6 July 2020, the FCA stated that in light of COVID-19, EU co-legislators have agreed to amend the Markets in Financial Instruments Regulation (600/2014) (MiFIR) to provide for an additional year for trading venues and central counterparties offering the trading and clearing of exchange traded derivatives (ETDs) to start applying the open access regime for trading and clearing ETDs under MiFIR. Accordingly, the relevant provisions will not apply until 4 July 2021 (previously 4 July 2020).
- Competition implications - the FCA Board Minutes were published on 19 August 2020 for a meeting held on 9 July 2020, and these reported the competition implications of COVID-19. The FCA Board was briefed on the resulting consumer harm, where these harms were considered most likely to occur across financial services, and the FCA’s activities to address them in the immediate term.
- Credit-like products - on 29 September 2020, the FCA published its Annual Report on the Regulatory Perimeter. The report noted that the FCA has seen growth in credit-like products outside the perimeter which are likely to attract users of high-cost credit products and which could pose harm to those who are financially stretched. In particular, the FCA has observed the development of employee salary advance schemes (ESAS) and certain exempt agreements. The FCA intends to carry out further research into the sector, especially given the potential for the use of such products to increase due to the economic impacts of the pandemic.
- Firms operating price comparison websites - on 16 November 2020, the FCA published a portfolio letter sent to firms operating price comparison websites (PCWs). In the FCA's view, PCWs have responded well to the challenges posed by COVID-19 but should keep in mind the key harms and drivers of harm which are heightened by COVID-19, such as consumers being sold products that do not meet their demands and needs, ineffective governance arrangements, poor culture and poor operational controls.
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