The FCA has extended temporary measures allowing firms to opt out of 10% depreciation notices to investors for a further 12 months to December 2022.

The move means that planner firms will not need to send so-called 10% drop notices to clients more than once if their portfolios drop by more than 10%.

Since March 2020 the FCA has adopted temporary Covid-19 measures suspending the requirement for firms to issue 10% depreciation notifications to investors (COBS 16A.4.3 UK).

The measures were put in place initially to help firms support consumers during market volatility linked to Covid-19 and the Brexit transitional period. 

The 10% depreciation or drop notices - requiring investors to be informed every time their portfolio drops 10% - have been criticised for unnerving investors and increasing paper work for planner firms.

Some critics have called for the notices to be dropped completely and the Treasury and FCA are considering this.

In March 2021 the regulator announced that it would retain the temporary measures while the Treasury carried out policy work on the future of the requirement as part of its Wholesale Markets Review (WMR). The FCA said findings from the review indicated support for removing or amending the requirement. 

The FCA said it was extending the temporary measures until 31 December 2022 while Treasury and FCA policy work on the requirement’s future is concluded. 

It says during this period it will not take action for breach of COBS 16A.4.3 UK for services offered to retail investors provided a 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 and 
• reminded clients how to check their portfolio value, and how to get in touch with the firm  

The FCA says that firms must still pay “due regards” to the interests of their customers and treat them fairly, 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. 

The FCA warned that it would still take action if it suspected potential serious misconduct that may cause (or has caused) significant harm to consumers.  

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

Wealth manager trade body PIMFA has welcomed the move but continues to call on the regulator and Treasury to reform the rules permanently. 

Tim Fassam, director of government policy and relations at PIMFA, said: “The announcement today from the FCA that it is extending the flexibility around the 10% depreciation notification rule for a further 12 months - first introduced in the wake of the Covid pandemic last year at the urging of PIMFA - is a welcome and sensible step given the impact the Omicron variant, and subsequent uncertainty it has caused, has had on markets in recent days.

“However, we have always been of the view that the 10% depreciation rule needs further reform in the longer term. This was always a rule that had more relevance for European Union financial markets than it did for the UK and our departure from the EU presents our industry, and the FCA with an opportunity to enact reforms that better fit our own domestic markets.”