including: invocation of business continuity arrangements; contingency planning; and financial resilience and liquidity management. By now, many firms will have already commenced these initiatives, by moving to a working from home environment or closer monitoring of the firm’s cash flow, for example.
Beyond this, for institutional investment firms, the most pertinent part of the communication relates to market trading and reporting, and in particular potential disruptions to such frameworks caused by working remotely. Firms that are subject to the recording of telephone conversations and electronic communications requirement are advised that the FCA recognises there are some instances where this may not be possible. If this is the case, firms need to advise the FCA of this, and consider alternative ways of mitigating the risk, including enhanced monitoring and retrospective reviews.
Furthermore, the FCA acknowledges that there may be some issues in complying with regulatory data submissions, such as transaction reporting under MiFIR. The FCA expects firms to record the data internally and then submit as soon as possible. Again, the FCA requests that firms advise them of any issues.
It would appear that the FCA is seeking a trade-off between ensuring that firms remain in compliance with their regulatory obligations and meeting the challenges posed by Coronavirus. These challenges include prioritising the wellbeing of staff, customers and the wider society and dealing with adverse market conditions and/or revised reporting requirements and restrictions, for example those related to short selling.
Concerning market trading and reporting, there is a marked contrast between the tone of the more recent FCA communication, which concedes that regulatory forbearance is appropriate in certain circumstances, and the previous communication of 4 March 2020 which states that the FCA expects firms to use recorded lines when trading. To illustrate this, the FCA advises that firms should take all steps to manage market abuse risk, providing firms with the opportunity to adjust the methodologies employed in order to achieve this is a welcome development.
It could be contended that the FCA should advise of other scenarios where regulatory forbearance may be appropriate. For example, many firms are required to publish their best execution data for 2019 by the end of April 2020 online. This could be an unwelcome distraction for some firms. The same logic could apply to the timing of the statutory firm audit (in particular given that UK Companies House has taken affirmative action in this regard concerning their deadline for this) and, for AIFMs, the ‘Annex IV’ reports. Such an approach would be consistent with that of the US Securities and Exchange Commission, which has in certain circumstances granted relief, for example regarding the timing of submissions of regulatory filings such as the Form ADV and the Form PF.
Finally, whilst not noted in the FCA publication, the coronavirus incident could be the first real test of the senior managers and certification regime. In particular, senior management should be seen to be making good decisions in response to the crisis, and this ‘tone from above’ should permeate within the organisation.
Please get in touch with your consultant should you have any questions or concerns. Among other things, we can assist with your communications to the FCA should any material issues arise.