10% depreciation reporting to be reviewed

The FCA has announced a review of the 10% depreciation notifications requirement. This requirement came into being with MiFIDII in January 2018 and is intended to ensure that investors are kept informed in periods of extreme market volatility.

The volatility in markets as a result of the pandemic in 2020 created a need for multiple notifications and many commentators noted that these appeared to be creating more anxiety than clarity for investors in addition to creating a substantial additional workload for firms. As a result, the FCA adopted temporary coronavirus (Covid-19) measures on the requirement for firms to issue 10% depreciation notifications to investors under COBS 16A.4.3, primarily applying greater supervisory flexibility on firms’ ongoing compliance with the requirement so long as certain criteria were met.

The FCA has now announced …

“This period of flexibility has given us the opportunity to consider the effectiveness of the 10% depreciation notification requirement. We intend to consult on changes to the requirement later this Spring. We are therefore extending the temporary measures for firms until the end of 2021 while we undertake policy work on the future of the requirement.

During this period, we won’t take action for breach of COBS 16A.4.3 UK for services offered to retail investors provided that the firm has: 

  • issued at least one notification in the current reporting period, indicating to retail clients that their portfolio or position has decreased in value by at least 10% 
  • informed these clients that they may not receive similar notifications should their portfolio or position values further decrease by 10% in the current reporting period 
  • referred these clients to non-personalised communications, perhaps made available on public channels, that outline general updates on market conditions (these could contextualise potential drops in portfolio or position value to help consumers meet their objectives, rather than making impulse decisions about their investments) and 
  • reminded clients how to check their portfolio value, and how to get in touch with the firm”

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

Markets appear to be reasonably stable at the moment so there is no immediate implication of the reporting requirement or the extension to the supervisory relaxation. But now that the UK is out of the EU and can formulate its own financial regulations, the FCA’s announcement of a review of this particular rule is to be welcomed. Maybe some other rules could be reviewed in due course too! Meantime, the FCA has reminded firms that they must still pay due regards to the interests of their customers and treat them fairly (Principle 6), and pay due regard to the information needs of their clients, and communicate information to them in a way which is clear, fair and not misleading (Principle 7).

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About the Author

John is Chartered Financial Planner and a Fellow. With a wealth of financial services experience, including as a successful adviser, John is a long standing ATEB consultant, with a proven track record of delivering robust compliance and T&C solutions across all regulatory disciplines.

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