For the last twelve months the UK's Financial Conduct Authority has been imposing temporary coronavirus-related measures on the requirement for firms to issue 10% depreciation notifications to investors in line with COBS 16A.4.3. It is now thinking of abolishing the notifications altogether.

The MiFID II 10% drop-letter rule applies to investment/portfolio management firms including discretionary fund managers (DFMs) or advisors with discretion to move investments about. They are obliged to tell their HNW customers whenever the total values of their portfolios drop by 10%, and thereafter at multiples of 10% compared with the beginning of each quarterly reporting period.

The FCA first suspended the rule in March last year for six months by issuing a 'Dear CEO' letter to investment firms - the nearest it has ever come to issuing a 'no-action letter,' a practice which the Financial Services and Markets Act bans. Last autumn an announcement on the FCA's website did the same thing for a similar half-yearly period.

Another announcement, which appeared on the website yesterday, says: "This period of flexibility has given us the opportunity to consider the effectiveness of the 10% depreciation notification requirement.

"We intend to consult on changes to the requirement later this Spring. We are therefore extending the temporary measures for firms until the end of 2021 while we undertake policy work on the future of the requirement."

During the period, the regulator will not take action against a firm unless it has:

• issued at least one notification in the current reporting period, indicating to retail clients that their portfolios or positions have decreased in value by at least 10%;
• informed these clients that they may not receive similar notifications should their portfolios 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 (these could contextualise potential drops in portfolio or position value to help consumers meet their objectives, rather than making impulse decisions about their investments); and
• reminded clients how to check their portfolio values and how to get in touch with the firm.

For services offered to professional investors, the FCA will not take action for any breach of COBS 16A.4.3 as long as firms have allowed professional clients to opt-in to receiving notifications.

Before making the first concession to help DFMs, the FCA had to consult the European Securities and Markets Authority. Times, however, have changed.