Shearman & Sterling LLP | FinReg | UK Conduct Regulator Dear CEO Letter to Firms on Consumer Protection During COVID-19 Pandemic
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  • UK Conduct Regulator Dear CEO Letter to Firms on Consumer Protection During COVID-19 Pandemic

    The U.K. Financial Conduct Authority has published a Dear CEO letter addressed to firms providing services to retail investors on the actions they should be taking to protect consumers during the COVID-19 pandemic. Firms are expected to provide strong support and service to consumers, to be transparent with their customers and to report to the FCA immediately if they foresee themselves getting into financial difficulty. Key issues raised in the letter are:
    • Client identity verification – firms should continue to comply with client identity verification requirements under the Money Laundering Regulations 2017, but can be flexible in their identification methods, in accordance with the Joint Money Laundering Steering Group guidance on remote verification (for instance seeking third party verification of identity and asking clients to submit "selfies" or videos);
    • Best execution flexibility – the FCA expects firms to continue to meet their obligations on client order handling and to consider using different types of orders to execute client orders and manage risk; the FCA has consulted with the European Securities and Markets Authority on the best execution requirements under the Markets in Financial Instruments Directive and supports ESMA's statement encouraging national regulators to deprioritize supervisory action until June 30, 2020 on firms' failure to comply with such requirements;
    • Depreciation notifications flexibility – portfolio management firms and those holding retail client accounts which include leveraged investments are required to notify investors of a drop of 10% or more in the value of the portfolio or leveraged position and for every 10% drop thereafter; in the current circumstances, the FCA does not intend to take enforcement action against firms that fail to make such notifications if the firm has issued at least one notification to retail clients within a current reporting period and either subsequently publishes general updates via public channels or chooses to cease providing 10% depreciation reports for professional clients; the FCA will maintain this approach until October 1, 2020;
    • Financial resilience – the FCA notes that COVID-19-related government funding and liquidity schemes are designed to help firms plan for how they will meet debts and remain solvent, but should not be used to meet capital adequacy requirements.
    View the FCA's Dear CEO letter.
    View ESMA's statement on best execution requirements.

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