FCA & COVID 19
by Damian Davies on 19·03·2020
Within the tsunami of COVID-19 messages from organisations, you may have missed The FCA’s guidance published yesterday.
There were four passages that I felt deserve a bit of closer scrutiny to see what they mean for you, your business and your clients:
“Our rules give firms the ability to consider their arrangements and customers’ circumstances. We welcome firms reviewing their current arrangements to address the evolving situation while managing the risks to their employees, customers and the impact on the market.”
This is a really useful passage, as it feels like the FCA are saying, ‘look, we know this is going to be a difficult time, and we trust you. We just need to know that whatever changes you make to your normal practice is for the benefit of your clients".
It would be wise to document and record any changes you make to processes. For example:
Client meetings - advice and planning is all based on understanding a client’s objectives. It can be harder to elicit engagement in digital meetings, so work out how you are going to get to the bottom of client objectives.
Client reviews - the fee you are paid each year is for an assessment of ongoing suitability. You cannot conduct suitability if you are unaware of the client’s changing circumstances and objectives.
As such, the reviews still need to happen, but maybe you want to change the processes around them.
Also, look at client staffing and identify what action you need to take if key individuals fall ill and cannot perform specific tasks, like client rebalancing.
This is also a great chance to build systemisation into the review process, so rearrange dates to get rid of bottleneck appointments and so on.
“We are in regular contact with firms to assess their current position and expect firms to be taking reasonable steps to ensure they are prepared to meet the challenges coronavirus could pose to customers and staff, particularly through their business continuity plans.”
I might be wrong, but this screams data security.
Working from home is a difficult thing to do. The Timebank has been built on home-based employees, and we are still learning all the time.
The most important thing you can ask yourself when the staff are working from home is how can the client data be at risk, and what should we do to protect against that.
Document that and overlay it with your business continuity plan and see if anything needs tweaking, both short term and long term.
“We expect firms to provide strong support and service to customers during this period. They should be clear and transparent and provide support as consumers and small businesses face challenges at this time. “
It has to be said, you cannot provide too much communications with your clients right now. If you do not have any tools for sending messages to clients, it is well worth investing now.
The Yardstick Agency produced an excellent guide, which you can look at here.
Remember to be open and honest – no-one has all the answers, but you have more answers than your clients with regard to their finances, so let them know your thinking.
It may be worth trying to reassure clients that the current market volatility is short term and remind them the long term is generally positive. Plus, most markets today are reflective of effective prices to come, so an element of anticipation.
Llegislation states you have to send the 10% drop emails. On the flip of this, just because it isn’t legislated, there is no reason why you can’t start planning to mayble send 5% gain emails or something like that.
Also, look into your PROD / CIP stuff and see what might be an exposure or weakness.
- Do any platforms have covenants that might restrict holdings or withdrawals?
- Do any investments have potential liquidity issues?
- Does the market volatility definitely match the clients capacity for loss parameters?
Make sure you manage your client’s expectations.
Most importantly make them aware this is a ripe time for scammers, so offer to verify anything
“We also expect firms to manage their financial resilience and actively manage their liquidity. Firms should report to us immediately if they believe they will be in difficulty.”
Projecting your financial situation forward, is there a point at which you can see you will feel uncomfortable?
Things to consider are:
- Cash reserves – how long can you support the business if all income ceased?
- Market volatility – If your fees are linked to the value of your client’s investments, how much further might the market drop before you start to get exposed?
- Client withdrawals – the expectations are that the situation will worsen before it improves, and the sad reality is that some people will make irrational decisions and just call time. How much of this could you absorb or have you large individual clients who would be catastrophic to lose?
If you project forward disaster scenarios, you can see a point at which you are likely to stumble. You can then anticipate and plan to either avoid it, or deal with it.
Here is a link to the notice:
https://www.fca.org.uk/firms/information-firms-coronavirus-covid-19-response
Have a read for yourself and if you would like to chat about this, please shout.
The only thing we know for certain about the coming months is they will be uncertain.
This is a difficult time, and we want to help you, so please feel welcome to pick up the phone.
Anyway, I’m off to The Winchester https://www.youtube.com/watch?v=6htT-aVJup4
Damian Davies