As the COVID-19 (coronavirus) outbreak worsens in Europe, the Financial Conduct Authority (FCA) and the European Securities and Markets Authority (ESMA) are working to try and mitigate its impact on the financial markets, financial services firms and their customers.
Some of the actions being taken are set out below.
1. Regulators set out expectations for firms on COVID-19
The FCA and ESMA have set out their expectations for UK and EU regulated financial services firms in respect of the COVID-19 outbreak.
These are set out in the following statements:
Firms should take note of these expectations and, where necessary, take appropriate action.
- Contingency plans: Firms are expected to have contingency plans in place to ensure business and operational continuity and to be ready to apply them. The FCA has said that firms should review their current arrangements and take reasonable steps to ensure they are prepared to meet the challenges and risks posed by COVID-19. Contingency plans of UK firms may be subject to review by the FCA.
- Financial position: The FCA requires firms to manage their financial resilience and actively manage their liquidity. Firms should report to the FCA immediately if they believe they will be in difficulty.
- Regulatory obligations: The FCA expects UK firms to take all reasonable steps to meet their regulatory obligations. Firms should also provide strong support and service to customers and be clear and transparent.
- Offsite working: The FCA has also said that it has no objection to UK firms making use of backup sites or having staff working from home provided that firms are still able to meet regulatory standards and consider the broader control environment. Firms must continue to take all steps to prevent market abuse risks which could include enhanced monitoring or retrospective reviews.
- Telephone recording: In the case of firms' telephone recording obligations, the FCA has said that where firms are unable to record calls, they should notify the FCA and consider steps to mitigate outstanding risks such as enhanced monitoring or retrospective review.
ESMA has also provided a statement to the effect that firms which are unable to comply with the standard MIFID II telephone taping requirements should adopt alternative arrangements. This could include using recordable electronic communications instead of telephone calls. If recording is not practicable at all then ESMA states that firms should consider alternative steps to mitigate the risks of the lack of recording which could include written minutes or notes of telephone conversations. In that case, clients should be notified that written records will be taken instead of recording. Firms should also ensure enhanced monitoring and ex-post review of relevant orders and transactions and seek to restore full telephone recording as soon as possible.
- Regulatory data: The FCA has said that firms which experience difficulties in submitting their regulatory data are expected to maintain appropriate records and submit the data as soon as possible.
- Fund Management: ESMA expects asset managers to continue to apply existing regulatory requirements on risk management and to react accordingly.
Both the FCA and ESMA are continuing to monitor developments.