UNITED KINGDOM: Supervisory Flexibility on RTS 27 Reports and 10% Depreciation Notifications

Monday March 22 2021

The FCA are putting in place temporary measures with respect to RTS 27 reports and 10% depreciation notifications while they consult on changes to these requirements later this Spring. These temporary measures will be in place until the end of 2021.

RTS 27 reports

The next set of RTS 27 reports on execution quality will be based on pre-Brexit data. As a result, the information in them is likely to be of limited use for market participants and may even be misleading.

There is also a particular challenge arising from the EU’s two-year suspension of RTS 27 reports for firms in the Temporary Permissions Regime who, benefitting from substituted compliance, would normally discharge their obligation in the UK by producing reports for the firm as a whole.

The FCA are currently preparing a consultation looking at the RTS 27 reporting obligation, with a view to abolishing it, given concerns that have been expressed around the value these reports bring to the market and to consumers, and the burdens involved in producing them.

Considering the upcoming consultation, the FCA will not take action against firms who do not produce RTS 27 reports for the rest of 2021. The FCA expect that by end of 2021 they will have concluded our policy consideration of the future of these reports.

10% depreciation notifications

For the last twelve months the FCA have adopted temporary coronavirus (Covid-19) measures on the requirement for firms to issue 10% depreciation notifications to investors (COBS 16A.4.3 UK).

These measures were put in place to help firms support consumers during periods of actual/potential market volatility linked to the spread of Covid-19 and the Brexit transitional period. The FCA said they would show supervisory flexibility on firms’ ongoing compliance with the requirement so long as certain criteria were met.

This period of flexibility has given us the opportunity to consider the effectiveness of the 10% depreciation notification requirement.

The FCA intend to consult on changes to the requirement later this Spring. The FCA are therefore extending the temporary measures for firms until the end of 2021 while the FCA undertake policy work on the future of the requirement.

During this period, the FCA won’t take action for breach of COBS 16A.4.3 UK for services offered to retail investors provided that the firm has:

• issued at least one notification in the current reporting period, indicating to retail clients that their portfolio or position has decreased in value by at least 10%
• informed these clients that they may not receive similar notifications should their portfolio or position values further decrease by 10% in the current reporting period
• referred these clients to non-personalised communications, perhaps made available on public channels, that outline general updates on market conditions (these could contextualise potential drops in portfolio or position value to help consumers meet their objectives, rather than making impulse decisions about their investments) and
• reminded clients how to check their portfolio value, and how to get in touch with the firm

Firms must still pay due regards to the interests of their customers and treat them fairly (Principle 6), and pay due regard to the information needs of their clients, and communicate information to them in a way which is clear, fair and not misleading (Principle 7).

If the FCA have concerns that potential serious misconduct may cause (or has caused) significant harm to consumers, then they will consider the appropriate response, which may include opening an investigation.

For services offered to professional investors, the FCA will not take action for breach of COBS 16A.4.3 UK provided that firms have allowed professional clients to opt-in to receiving notifications.

Click on the above link for further information.