On Thursday the Financial Conduct Authority (FCA) outlined its response to the coronavirus pandemic, as well as set out its expectations for the rest of the year, stating that it has two main priorities - operational resilience and financial resilience.
In a speech at the PIMFA’s Virtual Festival, Megan Butler, Executive Director of Supervision – Investment, Wholesale and Specialists at the FCA said that overall, in operational terms, the industry has responded well.
Megan Butler, Executive Director of Supervision – Investment, Wholesale and Specialists
Source: FCA
“There has been no significant erosion of clients’ access to services, business continuity arrangements appear to be working and “glitches” have been worked through. Overall it feels as if firms are coping and adapting to this new normal,” Butler said in her speech.
One allowance from the FCA was easing the burden on firms imposed by the 10 per cent devaluation reporting rule for discretionary managers as set out by the Markets in Financial Instruments Directive (MiFID) II. In particular, in a Dear CEO letter published on 31 March the regulator set out how it would supervise against this requirement until the end of September.
FCA: financial resilience can’t be overlooked
At the same time, the British regulator said that financial resilience cannot be overlooked, as a key impact of COVID-19 is significant downward pressure on many firms’ revenues. This, in turn, could give rise to harm to customers, if companies cut corners on governance or their systems and controls, Butler said in her speech.
Namely, this could increase the likelihood of financial crime, inadequate record-keeping and even lead to market abuse and inappropriate investment advice. Furthermore, Volatility could reveal previous mis-selling, increasing complaints and redress, she said.
“In the current climate, we cannot duck the fact that some of these firms may exit from the market altogether. In these circumstances, it is imperative to minimise any delay in the return of client money and custody assets, and to take action ahead of time to prevent shortfalls in what they should be holding on their clients’ behalf. To that end, the preservation of client assets and money is central to our focus in the wealth management sector.”
Future Regulation resulting from COVID-19
Following on from COVID-19, the UK watchdog has started to consider what the future of regulation might look like. Namely, Butler acknowledged that regulators need to be agile during times of change.
“We will capture the lessons from this emergency about delivering quickly. But we also need to look at our entire system, from the data and intelligence we collect, how we decide which firms and individuals to allow to operate and how we supervise them, to how we ensure that unacceptable firms and individuals are stopped and removed from the regulated sector as quickly as possible,” Butler added.
