This note sets out some thoughts and information on the current crisis.
Information from the FCA
The FCA has set up dedicated webpages for firms (link: https://www.fca.org.uk/firms/information-firms-coronavirus-covid-19-response) and for consumers (link: https://www.fca.org.uk/consumers/coronavirus-covid-19).
The key messages for firms are:
• Strong support for businesses and individuals is expected of firms by the regulator pursuant to the ‘treat customers fairly’ duty.
• The regulator is slowing or curtailing regulatory change, including consultations and face-to-face interactions with firms.
• Firms must consider their operational resilience and their Principle 11 obligations.
The Principle 11 notification duties, particularly in relation to the financial resilience of firms, are emphasised by the FCA on the webpage above. It is easy in a crisis to lose sight of the fact that the regulators must be kept informed of developments, and if they are the last to hear of a significant development, disciplinary action is likely to follow.
Key practical problems for firms include implementing the advice on social distancing whilst complying with their regulatory obligations. Most firms have required staff to work from home where possible, but many in finance cannot. A number of large firms are now operating from their back-up off-site locations on the outskirts of London. (Few in finance believed they would ever have to go to their off-site office pursuant to their firm’s Business Continuity Plan. The now lengthy commutes for many traders and salespersons are of course the least of our problems.)
Regulatory duties
It is important for senior managers and certified persons to bear in mind, during these challenging times, that the relevant regulatory duties generally bite on the concept of “reasonable steps”. For example, the FCA states on the firm’s webpage on the coronavirus: “Firms should take all reasonable steps to meet the regulatory obligations which are in place to protect their consumers and maintain market integrity”. That mirrors firm’s obligations in PRIN (the Principles for Business) and in the individual Conduct Rules.
Thus, the FCA states as regards the control environment at firms during the transition to home-working and off-site offices: (1) “Firms should continue to record calls, but we accept that some scenarios may emerge where this is not possible”; and (2) “Firms may experience difficulties in submitting their regulatory data, in which case we expect them to maintain appropriate records during this period and submit the data as soon as possible”. Thus, the FCA only expects firms to take steps that are reasonable in the circumstances, extreme as they are.
However, the FCA states: “We expect all firms to have contingency plans to deal with major events and that the plans have been tested”. Those plans may become a matter for regulatory action in due course, particularly where the lack of those plans causes problems for consumers or market participants. However, the question for senior managers now is what steps they can reasonably take to mitigate any such disruption, to maintain market integrity and to prevent business failure.
