Summary of letter to Christopher Woolard, chief executive of the Financial Conduct Authority (FCA)

Dear Christopher,

We have been discussing the impact of the coronavirus on our member firms’ businesses and on their clients. We also recognise that FCA’s resources will be stretched due to an increase in the number of queries from firms and the organisation’s need to act in the best interests of its own staff.

We believe that industry needs to get a sense from the FCA that the overall resilience of the UK financial infrastructure is recognised as being much more important than firms’ compliance with “nitty-gritty”, non-core obligations (e.g. the timeliness of issuing particular documents).

It might be helpful for FCA to give an indication of the factors that firms should consider in making judgments about how they prioritise their resources although we appreciate that any steer from FCA in this respect would necessarily be both broad and generic. In the event that London or other cities are ‘locked down’, FCA and HMT will need to give assurance to the
industry that they understand that this may result in firms being unable to meet many of their regulatory obligations. Further information needs to be provided by FCA and HMT regarding firms’ legal exposure if they are unable to meet their regulatory obligations due to, for example, a place of business being inaccessible.

There are a number of issues our members are concerned about which we outline below:

Firm engagement and notifications

Firms would welcome information on the key issues that the FCA definitely wants feedback on as well as confirmation that a more proportionate response will be taken by the regulator towards the reporting/handling of breaches that are non-material. Also, it would be useful to know if the FCA still expects to receive notifications that are largely administrative in nature.

Communication

FCA published information for regulated firms on the coronavirus on its website on 17 March 2020. In addition to the new webpage, firms would like to see a webpage, updated daily, which provides information on the issues raised by industry and on the FCA’s responses/decisions – this will ensure that all firms have access to a level playing field of information and that the FCA does not have to deal with duplicate queries.

Legal certainty

Our expectation is that FCA will seek to be as pragmatic as possible during this period. It would be helpful if FCA could address the issue of legal certainty in respect of the action taken by them.

Impact on FSCS

Firms are nervous about the potential impact on FSCS if firms have insufficient financial resources during this period. Firms assume that FCA will be closely monitoring this issue, specifically in relation to any firms whose financial position is already known to be precarious.

Operational issues

Operational issues will vary from firm to firm. Firms may be forced to reduce the frequency of reconciliations or may encounter issues due to a degradation of service from third parties. Firms are also reliant on third-party providers of technical and administrative services with some already experiencing issues with suppliers of IT equipment and courier services.

Remote desktop access will not have been used in such a widespread fashion by most firms before, so bandwidth problems as staff log onto Wifi from home may result in third party pricing or trading systems not operating at full capacity/speed, potentially resulting in best execution issues.

Firms are encouraging the use of e-communications and e-documents as far as possible – however, even where clients have not agreed to the use of such media, it is possible that firms may have to forego obtaining their consent in circumstances where offices are closed and there is consequently no means of issuing paper document.

Firms are also raising more detailed operational issues that the FCA could perhaps address via the daily Q&A webpage that we propose above.

Telephone recording

In its 17 March communication, FCA stated that firms should make it aware if they are unable to meet the call recording requirements but gave no indication as to how this notification should be made. Further guidance would be useful for firms that are not relationship-managed and have to go through the contact centre.

Training and competence

Training and competence requires, amongst other things, individuals to maintain 35 hours CPD. Most CPD courses have already been cancelled and it would be helpful for firms to get feedback as to the potential impact on individuals who are unable renew their SPS.

Audit reports
Given that CASS audit reports do not have a materiality threshold, we are unclear whether FCA will be hit with pages of qualifications if daily reconciliations have to move to weekly reconciliations. Some feedback about FCA’s expectations about the CASS audit report covering this period would be helpful to both firms and CASS auditors. CASS audits are generally very
expensive and firms are nervous about incurring additional audit costs during this period.

In the same vein, firms may also have issues with annual accounts audits – some of these are due soon and firms are liaising with accountants/auditors to establish how these can be done remotely.

Guided pathways

PIMFA has concerns about FCA’s plans to launch investment pathways in August 2020. We consider there are significant risks inherent in directing people towards any one particular investment solution in the context of them being non-advised. At this time, we would favour an approach from the Regulator where consumers are encouraged to seek out professional
support whilst also softening requirements to warn consumers about any perceived high cash exposure they may have at this time.

Meetings with clients

Meetings with clients are likely to be postponed. Whilst many clients will receive telephone calls, emails and possibly skype, there may be some unavoidable delay in the routine update of client information. Specifically, firms have referred to the MiFID II requirement to review the suitability
of investments with advisory clients annually: where the client meeting is used as the basis for a suitability review, this may be difficult if clients want to defer meetings until later in the year, creating pressure points for advisers and potentially a rule breach.

Client verification

Difficulties may be encountered where a client needs to produce original documentation for ID verification purposes. The nature of the documentation required is such that many individuals would not be willing to post them. Feedback from firms is that they will verify as much as they can but may have to seek sight of original documentation retrospectively.

Scams and fraud

As FCA has identified, there is heightened risk for firms and clients of scams and fraud. It would be helpful if any emerging fraud or financial crime issues and/or credible threats thereof are flagged to firms at the earliest opportunity. Similarly, firms should be encouraged to notify FCA of any issues they identify.

Financial Ombudsman Service (FOS)

It is important that FCA keeps FOS informed about the day-to-day issues that firms are facing during this period. Firms are nervous that, if complaints are made in a year or two years’ time, the FOS’s perception of good practice may fail to take account of the very significant challenges that firms were facing during this period.

Where firms’ complaints-handling staff are working from home, there may be a delay in investigating complaints, particularly where material that needs to be referred to, or included, in responses to clients is held in an office.
Feedback from FCA.

We are pleased that FCA has initiated weekly meetings to discuss issues arising from the coronavirus as this will enable us to keep each other up-to-date as firms’ responses to this uniquely challenging environment evolve.