The United Kingdom’s Financial Conduct Authority (FCA) has extended the application of its 10% depreciation notifications to portfolio management services providers in the country.

The rule is to be replaced next year as His Majesty’s Treasury has filed an alternative statutory instrument before the UK Parliament. The existing provision is reproduced in the FCA Conduct of Business Sourcebook COBS 16A.4.3UK.

The legislative amendment of the old provision, which originates from Article 62 of the Commission Delegated Regulation EU 2017/565 of 25 April 2016 (MiFID Org Regulation), is expected to be completed next year. As a result, the new rule is expected to come into force in January 2023, the FCA noted in a statement released on Thursday.

FCA Gives Conditions

“We have decided to extend the temporary measures for firms during the interim period, pending the revocation of Article 62,” the regulator said in the statement, adding that it will not take action for breach of the notification requirement if certain conditions were met.

These conditions include firms issuing at least one 10% depreciation notification during a current reporting period and also informing their retail investors that they may not receive similar notifications should the value of their portfolio drop by a further 10% or more during the period. Another condition required by the FCA tasks firms to direct their retail investors to “non-personalized communications” containing general updates on market conditions.

“These updates, which may be provided via public channels such as the firm’s website, should aim to contextualize changes in portfolio or position value so as to help the consumer make a considered decision about their investments rather than act on impulse,” the UK regulator explained.

The last condition stated by the FCA requires investment portfolio managers to remind their retail investors about how to check their portfolio value and reach out should they wish to obtain further information or seek advice.

FCA Implementing a Temporary Measure

The FCA has been adopting the 10% deprecation notifications provision since March 2020. However, last year, the regulator announced that it will maintain the temporary measure until December 31, 2022, while the Treasury worked on integrating the notification requirement into the Wholesale Markets Review (WMR).

The WMR is a framework that proposes a fundamental overhaul of the UK’s financial services regulatory regime through the improvement of secondary markets regulation while also taking advantage of the freedom that comes with Brexit.

“The measures were put in place initially to help firms support consumers during market volatility linked to coronavirus (COVID-19) and the Brexit transitional period. We said we would show supervisory flexibility to firms’ ongoing compliance with the requirement so long as certain criteria were met,” the regulator further explained.