FCA guidance for firms on messages to customers about market volatility

The FCA has published new guidance on how firms can avoid making personal recommendations when notifying customers of the implications of realising their investments in light of Coronavirus

08 April 2020

This article was written by Natalie Lim.

On the new webpage, the regulator recognises that these are naturally worrying times for customers, who may be contacting firms for advice on their affected investments or options for safeguarding their financial position. It is aware that some firms are not offering any guidance as they are concerned that, by trying to provide customers with information to make better informed decisions, they may unwittingly stray into giving personal recommendations (i.e. providing regulated investment advice). The new webpage sets out the FCA’s views on actions that firms can take to assist customers and example communications which, in the regulator’s view, do not amount to providing a personal recommendation. 

In summary:

Acting in customers’ best interests

As ever, the FCA expects firms to:

  • act in accordance with the best interests of their customers
  • communicate in a way that is clear, fair and not misleading
  • consider the needs of vulnerable customers in their communications.

Where a firm is concerned that a customer is making a decision that is not in their best interest, raising this with the customer would be in keeping with the firm’s obligations. 

Reminding customers of general considerations

Firms may remind customers of general factors to consider when, for example, making a decision to surrender an investment. They may also ask customers for background information to understand the circumstances or rationale behind the surrender request, which in certain cases may reveal grounds for concern that the surrender would be against the customer’s best interests.

Communications bringing out relevant considerations that clients should bear in mind would not constitute a personal recommendation, so long as it is clear from the language and context of the message that the firm is seeking to ensure that the customer makes a considered and informed decision. In contrast, where such communication involves the firm trying to guide the customer towards a particular investment strategy, it will likely amount to advice. 

Avoiding providing regulated advice

Recognising that customers might respond to such messages by requesting more support or advice on what to do, the FCA states that firms should try to help their clients where possible, by prompting them to consider relevant options and warning them of any downsides. However, firms must take care not to provide regulated advice (even implicitly), by steering customers to a specific course of action on their investments, unless they are willing to comply with the conduct requirements concerning personal recommendations. 

For more information on what kinds of communications are likely to be personal recommendations, please refer to the FCA’s Perimeter Guidance (in particular, PERG 8). Firms may also wish to consider the rules and guidance for defined contribution pensions schemes set out in COBS 19.4.15G to 19.4.18R, which indicate the type of timely, relevant and adequate information that can and should be provided to help customers make informed decisions.

Developing own approach to helping customers

Firms are not required to give the specific messages set out in the guidance and it is for firms to judge and act on the information needs of their customers. The FCA has confirmed that firms may develop their own approach to ensuring that their customers make informed decisions.

Signposting customers to advisers

Firms may also consider referring clients to financial advisers if they require or request additional support to make a decision.

Complaints

The FCA has discussed the guidance with the Financial Ombudsman Service (FOS). The FOS has confirmed that, in deciding what is fair and reasonable in all circumstances of a complaint, it will take into account whether or not a customer brings a complaint about the firm’s communications on surrendering investments at this time. 

Additional information

If firms would like the FCA to consider updating the guidance or including further information, they should contact the FCA at RDR-FAMR-ReviewCfI@fca.org.uk. Please note, the FCA guidance is provided in the context of the exceptional circumstances arising out of COVID-19 and is not intended to have longer-term application.

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