Tue, Mar 31, 2020

Guidance for Firms on COVID-19

We hope that all our readers are staying well and adjusting to remote working in these unprecedented times. Our anecdotal evidence seems to suggest that firms have coped well with the transition to home working. Nevertheless, we remain available to provide compliance related support through a variety of web-based tools that we are all becoming increasingly familiar with. Firms are expected to take all reasonable steps to comply with their regulatory obligations and therefore we have summarized the key issues that firms should be aware of, or should be focusing on, to address this challenging situation.

Key Issues and Considerations

  • Firms need to review their Business Continuity Plans (BCPs) to make sure that they can continue to operate effectively, whilst managing the risks to their employees and customers and their impact on the market. BCPs should be tested, up to date and fit for purpose for dealing with a major event like COVID-19.
  • Operational resilience, in particular cyber security controls, should be reviewed to ensure they are robust enough for remote working and the associated risks.
  • Firms are expected to be clear and transparent with their clients, continue to provide a good service and support for clients and to act in their clients’ best interests
  • Firms should closely monitor their financial resilience, capital adequacy and liquidity and report to the FCA immediately if they believe that they will be in difficulty. You will need no reminding of the FCA’s Principle 11 requirement for open relations with the regulator. 
  • Firms that are required to record telephone calls but have staff now working remotely need to continue to do so, but if recording calls is not possible, firms should notify the FCA. Firms that cannot continue to record calls should consider enhanced monitoring or retrospective review.
  • Firms that experience difficulties in submitting regulatory data to the FCA, they should keep sufficient records and submit the data as soon as possible. If firms have concerns, they should contact the FCA.
  • Firms should continue to take all steps to prevent market abuse, including enhanced monitoring and retrospective reviews. The FCA will continue to monitor for market abuse and take action where appropriate.
  • The governing body of the Firm should continue to operate effectively and meet, albeit virtually, and discuss issues. Governing Body minutes should be recorded.

Senior Managers and Certification Regime (SM&CR)

Under SM&CR it should be clear who has responsibility for what within a Firm. Firms should also be thinking about Senior Managers’ reasonable steps to prevent breaches from happening in these challenging conditions. Firms may need to make tough decisions, often at speed, whilst also continuing to ensure that they are acting in the best interests of clients. 

The FCA may look back at the governance arrangements around decision making once this crisis has abated, particularly where customers have suffered losses or where significant rules have been breached. 

Therefore, we remind firms that Senior Managers should be proactive, should take all reasonable steps to prevent breaches from happening and keep appropriate records of key decisions made and actions taken, along with justification where appropriate. The allocation of responsibilities should be clearly documented on Statements of Responsibilities and reflect what happens in practice.

FCA Guidance on Key Workers in Financial Services and Work-related Travel

The FCA issued guidance for identifying key financial workers who can continue to receive care for their children during the COVID-19 crisis.

Key financial workers are individuals who fulfil a role which is necessary for the firm to continue to provide essential daily financial services to consumers, or to ensure the continued functioning of markets.

Based on the FCA’s guidance, firms should:

  • Identify the activities, services and operations which, if interrupted, are likely to lead to the disruption of essential services to the real economy or financial stability;
  • Identify the individuals that are essential to support these functions; and
  • Identify any critical outsourcing partners who are essential to the continued provision of services.

The FCA recommends that the Chief Executive Officer (SMF1), or the most relevant member of the senior management team if the firm doesn’t have an SMF1, should be accountable for ensuring that firm has an appropriate process in place to make sure that only individuals meeting the definition of key financial worker are identified as such.

Each firm’s designated Senior Manager is responsible for identifying which of their employees are unable to perform their work at home and have to travel to the office or business continuity site.

The FCA notes that all firms should be clear that COVID-19 constitutes a public health emergency, that employers should take every possible step to facilitate working from home and that it expects the total number of roles requiring a physical presence in the office, or business continuity site, to be far smaller than the number of workers firms would require to run all their activities on a business as usual basis.

Short Selling

On March 16, ESMA issued a decision to temporarily amend the threshold for notifying net short positions to National Competent Authorities (NCAs) from 0.2% of issued share capital to 0.1%. The FCA confirmed that this would apply in the UK, but systems changes were needed. 

On March 31, the FCA confirmed that these systems changes had been made and it was ready to receive notifications at the lower threshold from Monday April 6, 2020. Firms are not required to amend and resubmit notifications submitted between March 16, and April 3.

Firms should make their best efforts to report at the lowest threshold from this date. However if this is not possible, as some firms may not be able to amend their systems by this date, firms should contact [email protected].

There have been a number of short selling bans by regulators in various jurisdictions, for instance Spain, Italy, France, Greece, Belgium and Austria. We continue to monitor this and would be happy to assist firms with specific requirements on short selling.

SEC Extensions 

The SEC issued a statement granting Registered Investment Advisers (RIAs) and Exempt Reporting Advisers (ERAs) relief the filing of Form ADV and Form PF that would ordinarily be due between March 13 and April 30.

In order to use this relief, RIAs and ERAs need to provide certain information by email to the SEC and, with respect to relief from Form ADV filing and delivery requirements, through a posting on the Firm’s public website (or directly to investors and other clients if the Firm does not have a public website). The information required is:

  • A statement that the RIA/ERA is relying on the order;
  • A brief description “of the reasons why it could not file or deliver” its Form ADV or Form PF “on a timely basis”; and
  • The date on which the manager estimates that it will make the relevant filing or delivery.
  • The SEC has stated that RIAs and ERAs must make the required filing and delivery “as soon as practicable, but no later than 45 days after the original due date.”

CFTC Extension

The NFA granted an extension to all Commodity Pool Operators (CPOs) and Commodity Trading Advisers (CTAs) for the upcoming CPO-PQR and CTA-PR filings. The NFA decided to extend the due dates for the December 31, 2019 PQR (due March 30, 2020) until May 15 2020, and the March 31, 2020 PQR (due May 30, 2020) until July 15, 2020.

Additionally, the CFTC has published “no-action positions” relating to the filing of pool annual reports that would be due on or before April 30, 2020. The CFTC would not recommend enforcement action in the event that CPOs are unable to file the pool annual reports pursuant to Commission regulations 4.7(b)(3) or 4.22(c) by the normal deadline, provided that the annual certified financial statements for the operated commodity pools are filed with the NFA, and distributed to pool participants no later than 45 days after the due date for such report. This relief does not prevent a CPO from requesting an additional extension of time, not to exceed a total of 180 days from the end of the pool’s fiscal year consistent with Commission regulation 4.22(f).

FCA’s Regulatory Activity

To enable firms to concentrate on supporting their customers during this challenging period, the FCA is delaying some regulatory activity and project work where appropriate and is extending the closing date for responses to open consultation papers and Calls for Input until October 1, 2020. 

How Can We Help?

We are available to provide extra help and support to firms during this difficult time. For instance, please contact us if you:

  • Have any problems or questions about any of the above-mentioned issues, or your systems and controls, whilst working remotely
  • Would like us to assist with filing and reporting,
  • Would like assistance to review and update your policies and procedures
  • Are short of staff and need extra support, where we could provide a seconded individual remotely to fill the gaps
  • Would like help with addressing any of the recent FCA correspondence, for instance the “Dear CEO” letters for asset managers and AIFMs, covering subjects such as operational, liquidity, the Senior Managers and Certification Regime and LIBOR
  • Need any other compliance assistance or support

Visit Duff & Phelps’ COVID-19 Resource Center here.

RTS 28 Annual Report 

We remind firms who are MiFID investment firms that where relevant, their annual RTS28 reports are due to be posted on their websites by April 30, 2020. These reports should cover 1 January to 31 December 2019 and are required under MiFID II. 

However, on March 31, ESMA issued a public statement recommending that National Competent Authorities (NCAs) take into account the difficult circumstances firms are facing due to the COVID-19 pandemic and to consider the possibility that:

  • Execution venues may not be able to publish RTS 27 reports by March 31, 2020 but may be able to publish them as soon as practicable after that date, but no later than the following reporting deadline (i.e. June 30, 2020); and 
  • Firms may only be able to publish RTS 28 reports due by April 30, 2020 on or before June 30, 2020

The FCA has confirmed that it expects firms to continue to meet their best execution obligations. However, the FCA has no intention of taking enforcement action where a firm:

  • does not publish RTS 27 by April 1, 2020, provided it is published no later than 30 June 2020
  • does not publish RTS 28 and Article 65(6) reports by April 30, provided they are published by June 30, 2020

Firms should make records of any internal decisions taken to delay the publication of these reports.

The RTS28 reports cover information on firms’ top five execution brokers or execution venues used during the year, divided by asset class. 

Information on the quality of execution achieved should also be provided, covering areas such as execution factors, affiliations and conflicts of interest, specific financial arrangements with execution venues, changes in venue usage, execution factors specific to customer types and situations where price and costs were not the primary execution factors.  


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