Covid-19 Update: FCA, TPR and Your Firm

Capital adequacy

The regulator has said it wants to see firms continuing to ‘operate in this challenging period’ and therefore, it is willing to show ‘flexibility’ around their capital.

We would suggest that if you are concerned about breaching your capital adequacy limits, you take up the FCA’s suggestion of contacting your FCA supervisor and discussing your concerns with them.

There are then the options of the various schemes the Government has announced; whilst there have been a few calls for the FCA to ease the capital adequacy rules temporarily to reflect the cash flow strain that firms might suffer as a result of the impact of the pandemic, at present, there have been no specific guidelines; only that the FCA has said that they will endeavour to be flexible in their approach.

In particular, requests have been made for greater clarity on the impact of a Business Interruption Loan on a firm’s capital adequacy requirement. The FCA will no doubt respond to these calls in due course. In the meantime, the situation remains that any loan is a liability on the firm’s balance sheet and not available as capital adequacy.

It is reasonable to presume that a firm would only borrow if: a) it needs the money for some temporary purpose, and b) the firm is confident it can cover the interest and repay the capital in due course. That being the case, a Coronavirus Business Interruption Loan Scheme (CBILS) is attractive for a variety of reasons, not least as the interest and terms are likely to be better because the government is standing as guarantor for 80% of it (although the firm is LIABLE for 100% of the loan) and the first 12 months are interest and fee-free.

Please do let us know if there is anything else you feel that we can assist with regarding this, or if you would like us to provide any further clarification on the information you receive from the FCA, if and when you contact them.

Defined benefit

The Pensions Regulator (TPR) has given defined benefit (DB) transfers a three-month hiatus while also allowing employers to halt contributions in response to the Covid-19 crisis. These are unprecedented, challenging and uncertain times for trustees, employers, administrators and crucially, savers.

Trustees of both defined benefit (DB) and defined contribution (DC) schemes, employers and administrators should focus their activities on the key risks to pension savers:

  • Benefits need to be paid.
  • The risk of scams needs to be minimised.
  • Employers need to continue contributing.
  • Savers need support to make good decisions in these challenging circumstances.
  • Some administrative breaches of the law may occur and we will maintain a proportionate and fair approach to any action we may take.

Employers

This is a challenging time for everyone and The Pensions Regulator (TPR) recognise the strain this is putting on employers. They will take a proportionate and risk-based approach towards enforcement decisions, in light of these challenging times, with the aim of helping to get employers back on track and supporting both employers and savers.

The government has published information about support for employers, employees and businesses affected by COVID-19.

The TPR is temporarily suspending regulatory initiatives. If you have been selected to take part, they will be in direct contact with you regarding their expectations and next steps. They will be maintaining one-to-one and relationship supervision and rapid response work to enable two-way contact with trustees, managers and sponsoring employers during this time – please contact your supervisor if you have any concerns.

They are postponing the publication of our Corporate Plan, their long-term strategy, and their consultation on bringing together codes of practice to form one single code. Their DB funding consultation is open, and they will review timings in the coming weeks.

Once again, if you are in difficulty, please contact the TPR if you have immediate concerns with your scheme, administration or cannot pay your contributions.

Full details can be found here.

Business

We have received a number of enquiries from firms who are receiving more demand from their clients to review their protection arrangements. It just shows what a scare can do to people to remind them of their need for financial protection against the unknown.

The downtime that the majority of us are facing and the increased time that has become available by not travelling to client meetings could be an ideal time to take a systematic approach to review your client’s protection arrangements.

Getting on top of compliance, processes, policies and procedures

I have only had one client so far suggest that he will be asking his local MP to ensure that the lockdown period is a minimum of 5 weeks as this is the amount of time he feels he needs to get completely on top of all of the outstanding tasks that he’s had rumbling along for the past few months.

Needless to say, he is currently taking each on in stages as looking at them collectively is why they have remained outstanding. He needs to review his CIP, PROD, client segmentation, service agreements/levels and overall charging structure. This sounds huge and to a certain extent, it is.

But, broken down into client segmentation and PROD – these go together and ensure that the products you are recommending and the services you’re offering are suitable and appropriate for each client category you create. You can then build your service agreement/levels around the needs of those clients and ensure that the charging structure applicable is both appropriate for the levels of service a client needs/wants and is also profitable to your business.

On the back of all of this is to ensure that the Centralised Investment Proposition you have in place is both robust and appropriate for the client categorisations, the service they are receiving and the charge you are levying.

As suggested at the outset, these are unprecedented times, but these are also times where we can catch up, remodel, get ahead of the game and futureproof our businesses for the better given that we know now a lot more than we possibly did 4 weeks ago.

Christian Markwick – Compliance Consultant
Part of the Verve Group

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