Regulators Issue Business Plan With Covid In Mind

The UK’s financial regulators have issued their business plan for the next 12 months with a message that while flexibility will be given due to the current pandemic it will not result in a lowering of standards.

In a joint statement the Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA) said while they recognised the issues the Covid-19 pandemic posed firms would be required to act in the best interests of their clients.

“We recognise that firms directly affected by coronavirus will need to keep their governance arrangements under review,” it said. “Where we can, we intend to provide flexibility to FCA and PRA dual-regulated firms. We have made specific provisions for firms in these circumstances.”

Firms will be given flexibility in terms of their responsibility to update and resubmit a Statements of Responsibilities (SoRs) if there are ‘significant changes’ to Senior Management Functions (SMFs) responsibilities.

“We are aware that ‘significant changes’ to an SMF’s responsibilities may be required in this period due to sickness or any other temporary situations as a result of coronavirus issues,” said the regulators.

As such firms have been told to resubmit relevant SoRs as soon as reasonably practicable considering the current circumstances.

The FCA and PRA will also look at new flexibility to enable non regulated staff to undertake senior management functions (SMF) above and beyond the current 12 week limit.

“In normal circumstances, the 12-week rule provides enough flexibility for firms to deal with temporary or unexpected SMF absences,” it said. “The FCA and PRA are currently gathering evidence on whether the 12-week rule is likely to give dual-regulated firms enough flexibility to deal with temporary absences of SMF as a result of coronavirus.”

The regulators have also reminded firms they need to ensure that staff which need to be certified to carry out their roles are renewed

“Firms should continue to take reasonable steps to complete any annual certifications of employees that are due to expire while coronavirus restrictions are in place,” it said. “We understand it may be necessary to adjust standard certification processes and policies. And we recognise that what constitute reasonable steps may be altered by the current circumstances. However, even in these circumstances, Certified staff who are not fit and proper should not be re-certified.

“Certification is an important mechanism for firms to ensure their critical people are fit and proper. It is even more important now for the public to be able to trust in the individuals delivering critical financial services.”

Simon Turner, Partner in EY’s Financial Services Regulation practice, said the statement made it clear that the regulators wanted firms to operate as usual in as much as the current situation allowed.

“At a time when many people and businesses are suddenly finding themselves in acute financial difficulty, and investors are finding it ever more challenging to make investment decisions, it is right that the core priorities of the regulator’s Business Plan go to the heart of some of the most immediate issues,” he said. “The message to firms is clear: act now in a way you will be proud of when we come out of this crisis.

“While everything has changed in the last few weeks, in terms of the FCA’s wider expectations of firms, nothing has changed. The Business Plan may be shorter in length this year, but the requirement for firms to continue to treat their customers fairly and act responsibly across all areas of their activity, now and beyond this crisis, remains clear. Although the overarching message responds to the current crisis, the central message is around the long-term commitment to the end consumer.”

Paul Dyer, Head of Regulatory Risk and Assurance at Huntswood added: “It’s clear that the FCA has been forced to prioritise short-term interventions given the coronavirus pandemic. This raises a broader concern that with many areas put on hold until the current crisis is averted, consumer harm will undoubtedly persist in other areas and may even be exacerbated by the crisis.

“However, the affordability of credit has been emphasised by the FCA as part of an immediate focus on core services and supported by the instruction for firms to proactively identify at risk consumers and show forbearance. This is a huge ask for the sector, particularly given current market conditions. Further guidance from the regulator is needed but firms must evolve and improve the fairness of their business models if they hope to succeed in the long-term.”

Mr Dyer who is the former deputy chief risk officer at the FCA added: “In particular, the regulator appears to have fired a warning shot at smaller firms that have previously flown under the regulatory radar. With more assertive action promised and an investment in the FCA itself, all businesses will find the fairness of their business models under scrutiny. Firms must ensure that their services adhere to these expectations and vulnerable customers are treated appropriately if they do not want to add regulatory intervention to their list of challenges.

“It is ironic, but understandable, that the FCA’s focus on operational resilience has been delayed due to the impact of coronavirus and a more immediate need to demonstrate resilience right now. The pandemic has highlighted the importance of this work and firms should plan to supply ‘surge’ capacity in future, partnering with credible and skilled third party partners to support customers in times of acute need.”