The Financial Conduct Authority (FCA) has attempted to provide some clarity to financial advisers and others in the retail investment value chain over the 10% notification drop rule.

Firms providing portfolio management services or holding client accounts have had to notify clients of 10% market drops since the Markets in Financial Instruments Directive II (MiFID II) came into effect a little over two years ago.

However, in the recent market turbulence the rule has become burdensome on financial advisers and others as they have had to report on multiple drops. The watchdog said firms had complained this regulation had created an “operational burden”.

In order to help firms during the current coronavirus crisis, the FCA said it had no intention of taking enforcement action where a firm did the following three things:

  • Issued at least one notification to a retail clients within a current reporting period, indicating their portfolio has decreased in value by at least 10%; and
  • Subsequently provides general updates through its website, other public channels (such as social media) and/or generic, non-personalised client communications. These communications should update clients on market conditions, explain how clients can check their portfolio value and invite clients to contact the firm if they wish; or
  • Chooses to cease providing 10% depreciation reports for any professional clients

The FCA said it would adopt this approach for six months – until 1 October 2020. You can read its complete Dear CEO letter here.


Further Reading

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