Coronavirus: the FCA response
May 4, 2020
Coronavirus has caused a huge shock to the global economy. It is too early to precisely measure the scale of that shock, but on 14 April 2020, the OBR produced a ‘reference scenario’ which envisaged a 35% fall in the UK’s real GDP in the second quarter of 2020. Even accounting for the broad assumptions underlying this scenario, the magnitude of the potential retraction is alarming. Reinforcing the point, Gertjan Vlieghe, of the Bank of England’s Monetary Policy Committee, said in a speech on 23 April 2020 ‘we are experiencing an economic contraction that is faster and deeper than anything we have seen in the past century, or possibly several centuries’.
The resilience and flexibility of the financial services industry will be vital to mitigating the lasting damage this does to the UK economy and the primary financial services regulators, the FCA, the PRA and the Bank of England, have each taken immediate steps to support the industry and customers.
On its recently published 2020/2021 Business Plan, the FCA described its objectives in response to the crisis as:
- keeping markets functioning and orderly during a major ‘repricing’ event
- issuing emergency guidance so that government schemes, for example, to help small firms and mortgage holders can work
- supporting consumers with the immediate shocks created by the crisis
- keeping public access to essential banking services
- protecting the most vulnerable in society
This note summarises some of the more significant measures taken by the FCA to date in pursuance of those objectives.
The FCA has stated that its expectations of regulated firms will not be compromised in the context of the pandemic. In particular, firms must:
- have reasonable contingency plans in place to address ‘major events’, which include pandemics. Along with the Bank of England, the FCA is conducting a review of such contingency plans across a wide range of regulated firms in order to assess the operational and business continuity risks posed by coronavirus;
- focus on providing strong support to customers during the pandemic in order to help mitigate the challenges faced by individuals and businesses;
- manage financial resilience and liquidity, remain clear and transparent in doing so, and immediately report to the FCA where they are ‘in difficulty’.
These requirements are not novel and simply emphasise key aspects of the FCA’s Principles for Business, all of which will be central to the FCA’s assessment of firms’ conduct in the context of the pandemic.
Beyond setting out its high-level approach, the FCA has published guidance on a number of specific areas. This includes the following.
- Regulatory engagement: in order to reduce the burden on firms whilst they meet the challenge posed by coronavirus, the FCA will delay or postpone regulatory activity which is not critical to protecting customers and market-integrity in the short-term. This will include extending the date for the entry into force of certain new rules, extending the deadline for all consultation responses until 1 October 2020 and limiting the number of routine regulatory meetings in order to focus on business-critical issues.
- Senior managers: the Senior Managers Regime requires a senior manager (or senior managers) to have specific responsibility for operational resilience and financial resilience, both of which are central to firms’ co-ordination of their responses to the pandemic. However, the FCA is clear that a specific senior manager is not required to be appointed to oversee firms’ coronavirus responses. More broadly, senior managers are likely to be faced with difficult decisions over the coming months, some of which will require a sensitive balancing of firms’ interests against the interests of their customers, and managers should anticipate decisions coming under (perhaps significant) scrutiny from regulators and the media. Accordingly, decision making processes should be carefully documented so that the underlying rationale can be clearly explained in future if necessary.
- Market trading and reporting: as firms move to alternative sites and facilitate working from home, they must bear in mind their regulatory obligations in respect of market reporting and recording or as the FCA puts it, ‘they must consider the broader control environment in these new circumstances’. In particular:
- firms must continue to take all necessary steps to prevent market abuse, including enhanced monitoring and retrospective reviews. Given the increased market volatility caused by the pandemic, the FCA can be expected to be particularly vigilant in monitoring for potential abuse and taking enforcement action;
- firms should seek to continue to record calls, although the FCA acknowledges this may not always be possible. Where firms cannot comply with relevant requirements, they should inform the FCA. Any risks created by an inability to record calls should be mitigated, including by enhanced monitoring or retrospective review;
- firms may be unable to submit regulatory data as normal. In such circumstances appropriate data records should be maintained and the data submitted as soon as possible. Submissions should not be unnecessarily delayed. In our view, given the importance of accurate regulatory reporting to the FCA’s market oversight and the possibility for significant fines to flow from any breach of regulatory reporting obligations, firms should liaise closely with the FCA in respect of any significant reporting issues they face and where possible, seek formal FCA approval of the steps taken.
- Insurance: the FCA has produced specific and extensive guidance in relation to insurance products. This focusses on urging clarity of communication and fair treatment of customers, particularly in respect of policy exclusions and changes of circumstance which may be outside of customers’ control. The FCA has made clear that it may regard as unfair a refusal to renew insurance cover where a policy has been suspended due to coronavirus. Any changes of policy terms (either mid-term or on renewal) which might exclude coverage due to coronavirus may also be regarded as unfair.
- Mortgages: where a customer is experiencing, or reasonably expects to experience, payment difficulties as a result of coronavirus and would like to benefit from a 3-month payment holiday, firms should grant such a payment holiday unless they can show it is reasonable and in the customer’s best interests not to do so. When engaging with customers, firms should pro-actively raise the issue of a payment holiday where appropriate, and firms should consider the customer’s interests when seeking to recover the cost of a payment holiday. In particular, the amount should not be capitalised without explaining the cost of capitalisation to the customer and offering alternative methods of payment. The FCA has also emphasised its view that firms should not commence or continue repossession proceedings at all at this time, and, where a possession order has been obtained, firms should not enforce it. In the FCA’s view, any failure to comply with its guidance on repossession is ‘very likely’ to amount to a breach of its Principles and its detailed mortgage regulation.
- Pensions: new rules under policy statement 19/1, relating to customer information requirements, came into effect on 6 April 2020. In light of the difficulties firms have faced in implementing these rules, the FCA accepts that delays may occur. An FCA notification must be made to the FCA if implementation is likely to run beyond 31 May 2020. Similarly, the period for compliance with new rules (i.e. those not already in force) under policy statement 19/21 have been extended by 6 months until 1 February 2021.
- Unsecured debt products: during the pandemic, the FCA expects firms to allow customers in persistent credit card debt much greater flexibility. In particular, where customers are making low repayments over a long period and have failed to engage with firms’ proposals of altered payment terms, firms would usually be required to suspend relevant credit cards. The FCA is temporarily loosening this requirement, so firms will not be required to suspend any credit card before 1 October 2020.
- Access to cash: given the increased usage of telephone and online banking systems during the pandemic, often by first-time users, firms should continue to liaise with vulnerable customers and should remind customers to be aware of fraud and to protect their personal data.
The above is a high-level summary of some of the primary steps taken by the FCA in response to coronavirus. Firms can expect significant regulatory change to occur quickly throughout the pandemic and should monitor FCA publications regularly as well as engaging regularly with FCA contacts.
 See page 5 of the ‘FCA Business Plan 2020/2021’
 See ‘FCA information for firms on coronavirus (Covid-19) response’.
 Implementation of the following rules will be delayed: PS 20/03: Signposting to travel insurance for consumers with medical conditions; PS 18/20: Improving the quality of pension transfer advice (Pension Transfer Specialist qualifications only); PS 19/21: Retirement Outcomes Review: feedback on CP19/5 and our final rules and guidance; PS 19/29: Making transfers simpler – feedback to CP19/12 and final rules.
See ‘FCA information for firms on coronavirus (Covid-19) response’ for further details.
 See FCA ‘Insurance and coronavirus (Covid-19): our expectations of firms’.
 See FCA ‘Mortgages and coronavirus: our guidance for firms’.