Contents

• FCA 2020/21 business plan
• FCA regulated fees and levies for 2020/21: CP20/6
• COVID-19: FCA CASS guidance
• COVID-19: FCA statement on solo-regulated firms SMCR impact
• COVID-19: FCA defers commencement dates of new rules
• COVID-19: FCA guidance on avoiding personal recommendations
• FOS plans and budget for 2020/21
• COVID-19: European Commission extends consultation deadlines
• EU digital finance strategy: European Commission consultation
• Renewed sustainable finance strategy: European Commission consultation
• COVID-19: IOSCO reprioritises 2020 work programme

Following a seasonal break, the next update will be published on 27 April 2020.

FCA 2020/21 business plan

The Financial Conduct Authority (FCA) has published its 2020/21 business plan setting out its business priorities for the year ahead. The FCA's immediate focus is to address the challenges presented by COVID-19.

Over the medium term, the FCA has identified five key priorities, to:

• transform how it works and regulates;
• enable effective consumer investment decisions;
• ensure consumer credit markets work well;
• make payments safe and accessible; and
• deliver fair value in a digital age.

Read more in our briefing: FCA's new Business Plan prioritises areas of most potential harm amid COVID-19 challenges.

FCA regulated fees and levies for 2020/21: CP20/6

The FCA is consulting, in CP20/6, on:

• FCA 2020/21 periodic fee rates, revised application fees and further FCA fees, further FCA policy proposals and consumer harm campaign; and
• Financial Ombudsman Service, Money and Pensions Service, Devolved Authorities and HM Treasury's illegal money lending levies.

In addition, CP20/6 provides feedback on the FCA's approach to periodic fees for cryptoasset businesses.

Given the impact of COVID-19, the FCA is proposing a freezing of minimum fees. This means that the 71% of firms that are small enough to only pay minimum fees will see no change in the fees they pay. In addition, to help medium and smaller firms the FCA proposes to extend the period for paying their fees by two months to 90 days. The FCA says that this means that 89% of firms will have until the end of 2020 to pay their fees and levies. Larger firms will be expected to pay their fees under the usual payment terms.

The consultation closes on 19 May 2020. The FCA plans to publish its response and the final fee rates and levy rules in a policy statement in early July 2020.

COVID-19: FCA CASS guidance

On 6 April 2020, the FCA published a webpage setting out some firm queries and the FCA's response, regarding concerns relating to compliance with the FCA's Client Assets sourcebook (CASS) in light of COVID-19 challenges. In summary, issues covered include:

Handling of cheques

Firms have noted some difficulties being caused by cheques being delivered to unmanned offices and remaining unbanked. The FCA expect firms to consider potential harm caused by not being able to cash the cheque on a case-by-case basis, for instance, whether it means the customer cannot receive the product or service intended until the cheque is cashed. Firms should communicate clearly with clients on this. The FCA also highlights the CASS requirements relating to cheques.

CASS audit reports

Some firms are concerned the current situation could lead to additional breaches needing to be reported and costs of CASS audit reports could increase. The FCA states that if an audit firm is unable to submit a particular CASS audit report to the FCA within the four-month deadline, it should follow the relevant late reporting rules in the Supervision manual (SUP). It adds that audit firms may wish to remind their clients that regulated firms may also be under a duty to notify the FCA through Connect of certain matters.

Physical asset reconciliations

Some firms subject to CASS 6 have reported difficulties reconciling physical safe custody assets as they cannot access the location where the assets are held. CASS 6.6.22 R requires a firm to reconcile physical safe custody assets as often as is necessary and, in any event, every six months. Where there are logistical difficulties in relation to this requirement arising from COVID-19, the FCA expects firms to take such mitigatory steps as are possible in the circumstances, to ensure that clients assets remain protected. The FCA reminds firms that they should notify the FCA if they are unable to conduct a physical asset reconciliation.

Depositing client money

Some firms subject to CASS 7 have noted that an increase in client money holdings may lead to some operational challenges in terms of meeting segregation and diversification requirements. The FCA states that firms should continue to follow the rules on diversifying holdings in CASS 7.13. If a firm is experiencing any challenges in being able to segregate money, the FCA expects it to have assessed the options available to it in detail before contacting the FCA.

Notification of CASS breaches

Firms are reminded they should continue to make notifications to the FCA required under CASS, including of any rule breaches.

CASS firm classification

Some firms have reported increased holdings of client money and/or custody assets. The rules in CASS 1A.2.2 R and CASS 11.2.1 R require certain firms to categorise based on the value of client money and/or assets held during the previous calendar year (ending on 31 December 2020). The FCA states that firms should continue to operate as normal and notify the FCA of their categorisation in January as usual.

Delays to improvement programmes

Some firms are unable to progress planned improvement programmes to improve compliance with the CASS rules. Such firms should consider reporting these delays to FCA and, where relevant, keep existing CASS contacts at the FCA notified of progress towards compliance.

COVID-19: FCA statement on solo-regulated firms SMCR impact

On 3 April 2020, the FCA published a statement on the impact of COVID-19 on the Senior Managers and Certification Regime (SMCR) for solo-regulated firms. This follows the joint FCA and Prudential Regulation Authority (PRA) expectations for dual-regulated firms (reported last week).

In its statement for solo-regulated firms, the FCA reiterates that it does not require firms to have a single senior manager responsible for their coronavirus response. Firms should allocate these responsibilities in the way which best enables them to manage the risks they face. In addition, the FCA gives guidance on:

Senior management responsibilities

Senior managers should be considering where the current situation might lead to emerging risks, and how it affects existing risks, along with the controls used to manage them.

Statements of responsibilities and "significant changes" to senior manager responsibilities

The FCA does not intend to enforce the requirement on firms to submit updated statements of responsibilities (SoRs). This is provided that the change is made to cover multiple sicknesses, or other temporary changes in responsibilities in direct response to COVID-19, and is temporary and expected to revert to the firm's previous arrangements. However, the FCA expects allocations (however temporary) to be clearly documented internally, so that everyone understands who is responsible for what. This does include updating SoRs, role profiles and responsibilities maps (if applicable).

Temporary arrangements for senior management functions

The FCA intends to issue a modification by consent to the 12-week rule to support firms using temporary arrangements. The modification will allow temporary arrangements to be extended up to 36 weeks. Firms are still expected to clearly document these responsibilities, including on relevant SoRs and management responsibilities maps (if relevant). Under the modification, firms will also be able to allocate the prescribed responsibilities of the absent senior manager to the individual who is standing in for the absent senior manager.

Furloughed staff

While senior managers may be considered to be key workers, there may be cases where firms decide to furlough a senior manager if they are unable to fulfil their responsibilities, for example due to illness, caring responsibilities or if they have no current practical responsibilities. Unless a furloughed senior manager is permanently leaving their post, the manager will retain their approval during their absence and will not need to be re-approved by the FCA when they return, but the firm is still responsible for ensuring the senior manager is fit and proper. If a firm is subject to the overall responsibility rule, the responsibilities of the furloughed senior manager must be allocated to another senior manager. If the firm is relying on the 12-week rule, the replacement does not need to be a senior manager.

Reallocating prescribed responsibilities

The firm should reallocate the prescribed responsibilities of a furloughed senior manager to another senior manager. Individuals performing required functions (for example, compliance oversight, the money laundering reporting officer and the limited scope function) should only be furloughed as a last resort.

COVID-19: FCA defers commencement dates of new rules

In response to COVID-19, on 7 April 2020, the FCA published the COVID-19: Deferral of Commencement (Pension Transfers, Investment Pathways, Platform Switching, Access to Insurance) Instrument 2020 (FCA 2020/15), deferring the commencement dates of new rules on pension transfers, investment pathways, platform switching and access to insurance. This instrument was made by the FCA Board on 3 April 2020 and came into force on 6 April 2020. It postpones the commencement dates of the following:

• the Conduct of Business Sourcebook (Pension Transfers) (No 2) Instrument 2018 (FCA 2018/47) – the FCA has delayed the pensions transfer specialist qualification rules until 1 October 2021. It is aware that most accredited bodies and other professional qualification providers are postponing their exams due to COVID-19;
• the Conduct of Business Sourcebook (Investment Pathways) Instrument 2019 (FCA 2019/83) – the FCA has revised the implementation dates of the rules in this instrument (other than those already in force) by six months to 1 February 2021;
• the Conduct of Business Sourcebook (Platform Switching) Instrument 2019 (FCA 2019/103) – the FCA has revised the implementation dates of the rules in this instrument by six months until 1 February 2021; and
• the Insurance: Conduct of Business Sourcebook (Access to Travel Insurance) Instrument 2020 (FCA 2020/3) – the FCA has postponed the November 2020 start date for the signposting rules to "a date to be determined". It is monitoring the situation and will update stakeholders on the revised implementation date when it has more clarity on the impact of COVID-19. The rules requiring firms to include details of a medical cover firm directory on their websites 30 days after they become aware of an operational directory will commence on 1 June 2020. The Money and Pensions Service is currently developing a directory. However, it is not clear when this will be operational and the FCA will post an update in due course.

The FCA warns that the changes to these commencement dates are not yet reflected in the online Handbook.

COVID-19: FCA guidance on avoiding personal recommendations

On 7 April 2020, the FCA published a webpage giving guidance to firms on how to avoid straying into making personal recommendations when informing customers of the implications of realising their investments or cancelling life assurance in light of COVID-19.

The FCA is aware that some firms that do not provide advice are concerned that, by trying to provide customers with information to make better informed decisions, they may unwittingly stray into giving personal recommendations (that is, providing regulated investment advice). Therefore, the FCA sets out actions that firms can take to assist customers which it does not consider amount to the provision of a personal recommendation.

The FCA reminds firms of their obligations that they should act in accordance with the best interests of their customers, communicate in a way that is clear, fair and not misleading, and consider the needs of vulnerable customers in their communications.

The FCA confirms that communications highlighting relevant considerations the customer should bear in mind would not amount to a personal recommendation, so long as it is clear from the language and context of the message that the firm is looking to ensure the customer makes a considered and informed decision. In contrast, if the communication involves the firm trying to guide the customer towards a particular investment strategy, then this will likely amount to advice. The FCA gives examples of communications that would not, in its view, amount to personal recommendations.

The examples are not prescribed. Firms can develop their own approach to ensuring their customers make informed decisions. However, firms must satisfy themselves, in each case, that the substance of the communication is appropriate to their customers' situation and likely to help the customer safeguard their own interests. It is for firms to judge and act on the information needs of their customers.

The FCA recognises that customers might respond to these messages by asking for more support or advice on what to do. It states that firms can and should try to help their customers where possible by prompting them to consider relevant options, and warning of any downsides. However, firms should be careful not to provide regulated advice, even implicitly, by steering the customer to a specific course of action on their investments, unless they are willing to comply with the conduct requirements concerning personal recommendations.

The FCA states that firms might also consider referring the customer to financial advisers if the customer needs or requests more support to make a decision.

The FCA has discussed the guidance with the Financial Ombudsman Service (FOS). The FOS has confirmed that, in deciding what is fair and reasonable in all the circumstances of a complaint, this guidance would be one of the things that it will take into account if a customer brings a complaint about the firm's communications on surrendering investments at this time.

If firms would like the FCA to consider updating the guidance or including further information, they can contact the FCA at RDR-FAMR-ReviewCfI@fca.org.uk.

FOS plans and budget for 2020/21

The FOS has published its plans and budget for 2020/21. While there is ongoing uncertainty about COVID-19's impact on its operations, the FOS' aspiration remains that it will deliver on the commitments set out in the document and provide an effective service. This includes resolving disputes between businesses and customers arising from COVID-19 and proactively sharing what it is seeing in its casework, to prevent further complaints.

Having discussed options with the FCA, the FOS has made adjustments to its budget and funding arrangements to help mitigate the financial pressures on firms. The minimum levy paid by businesses will be frozen. 70% of the FOS' income will now come from case fees, rather than the 60% proposed in the consultation. The FOS will reassess the situation throughout 2020/21.

The FOS confirms that, in 2020/21, its case fee will increase for the first time since 2013. However, the "free" case allowance will remain at its current level of 25 cases for firms outside the FOS' group account fee arrangement.

COVID-19: European Commission extends consultation deadlines

On 3 April 2020, the European Commission updated its consultation webpage indicating that it is extending the deadlines for responding to certain consultations because of COVID-19. Among others, the following consultations have been extended:

EU digital finance strategy: European Commission consultation

The European Commission is consulting on a new digital finance strategy for Europe and a FinTech action plan. The consultation closes on 26 June 2020.

As set out in the Commission Work Programme, the Commission intends to propose in Q3 2020 a new "Digital Finance Strategy/FinTech Action Plan" that sets out a number of areas that public policy should focus on in the coming five years. It will also include policy measures organised under these priorities. The Commission states that it may also add other measures in light of market developments, and in coordination with other horizontal Commission initiatives already announced to further support the digital transformation of the European economy, including new policies and strategies on data, artificial intelligence, platforms and cybersecurity.

The Commission has identified the following four priority areas for the development of digital finance in the EU:

• ensuring that the EU financial services regulatory framework is fit for the digital age;
• enabling consumers and firms to reap the opportunities offered by the EU-wide single market for digital financial services;
• promoting a data-driven financial sector for the benefit of EU consumers and firms; and
• enhancing the digital operational resilience of the EU financial system.

This consultation focusses on the first three of these priority areas. The fourth area is already covered by the Commission's separate consultation on digital operational resilience.

In addition, the Commission has published a separate consultation on a retail payments strategy for the EU.

Renewed sustainable finance strategy: European Commission consultation

The European Commission has published a consultation document on a renewed sustainable finance strategy.

The renewed sustainable finance strategy will provide a roadmap with new actions to increase private investment in sustainable projects and activities to support the different actions set out in the European Green Deal and to manage and integrate climate and environmental risks into the financial system. The initiative will also provide additional enabling frameworks for the European Green Deal Investment Plan.

The renewed sustainable finance strategy will focus on three areas:

• strengthening the foundations for sustainable investment by creating an enabling framework with appropriate tools and structures. Many financial and non-financial companies still focus excessively on short-term financial performance instead of their long-term development and sustainability-related challenges and opportunities;
• increased opportunities to have a positive impact on sustainability for citizens, financial institutions and corporates. This aims to maximise the impact of the Commission's frameworks and tools to "finance green"; and
• climate and environmental risks will need to be fully managed and integrated into financial institutions and the financial system as a whole, while ensuring social risks are duly taken into account where relevant. Reducing the exposure to climate and environmental risks will further contribute to "greening finance".

The consultation closes on 15 July 2020.

COVID-19: IOSCO reprioritises 2020 work programme

On 8 April 2020, the International Organization of Securities Commissions (IOSCO) announced that it has reprioritised its work programme for 2020 to address the impact of COVID-19.

In deciding on which priorities to pause or delay, IOSCO was guided by four overarching principles:

• a delay would relieve untoward pressure on IOSCO members who are addressing core crisis challenges;
• operational constraints on financial institutions would likely impede their ability to contribute to IOSCO projects and/or follow up on final reports;
• in many cases it may be inappropriate to issue reports during this crisis given that they may become wholly or partly overtaken by events and/or they would need to be modified to take account of lessons learned or factor in a substantially changed financial landscape as a result of the crisis; and
• IOSCO, the Financial Stability Board (FSB) and other Standard Setting Bodies with whom IOSCO collaborates are focusing substantial efforts (which is resource intensive) to address the crisis which is now the priority.

In view of these principles, IOSCO has agreed to redeploy resources to focus primarily on matters that are directly impacted by COVID-19. Among other things, substantial resources are being devoted to addressing areas of market-based finance, which are most exposed to heightened volatility, constrained liquidity and the potential for pro-cyclicality. These efforts include examining investment funds, as well as margin and other risk management aspects of central clearing for financial derivatives and other securities.

A limited number of other workstreams that are close to completion will continue. The timelines for the projects relating to asset management linked to FSB recommendations will be coordinated with the FSB.

Work being delayed or paused includes IOSCO's analysis of the use of artificial intelligence and machine learning by market intermediaries and asset managers, the impact of the growth of passive investing and potential conduct-related issues in index provision, issues around market data, outsourcing and implementation monitoring.

IOSCO will continue to proceed with its work on good practices for deference, as well as other projects that are near completion that will not burden limited regulatory or industry resources. IOSCO will also examine any specific investor protection issues, market integrity or conduct risks that may arise in the context of COVID-19.

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