Coronavirus: FCA announcements round-up
The UK Financial Conduct Authority (FCA) has issued various statements this week addressing the developments and measures affecting market participants in the midst of the coronavirus crisis. FinTech Futures collated a round-up of these notices to assist our readers in their search for regulatory updates on coronavirus (COVID-19).
The regulators notes that it wants to see firms to continue operating in this challenging period, and, intends to provide flexibility to regulated firms to ensure this.
The below covers capital and liquidity buffers for FCA solo-regulated firms, short-selling bans, Libor transition plans and keeping bank branches open.
FCA’s expectations on financial resilience for FCA solo-regulated firms
Capital and liquidity buffers are there to be used in times of stress. Firms who have been set buffers can use them to support the continuation of the firm’s activities.
Firms should be planning ahead and ensuring the sound management of their financial resources. If the firm needs to exit the market, planning should consider how this can be done in an orderly way while taking steps to reduce the harm to consumers and the markets.
Government schemes to help firms through this period can be part of a firm’s plans for how they will meet debts as they fall due.
If a firm is concerned it will not be able to meet its capital requirements, or its debts as they fall due, they should contact their FCA supervisor with its plan for the immediate period ahead.
Firms that are prudentially regulated by the Prudential Regulation Authority (PRA) should consider the PRA’s requirements and discuss their concerns with them. Those firms should also keep the FCA notified of any significant developments.
Market volatility and short-selling bans
Some European countries have introduced short selling bans, and, in line with our standard practice, we have followed those bans, where requested, in respect of shares for which relevant European National Competent Authorities (NCAs) are responsible.
The FCA would like to draw the industry’s attention to the announcement by the Austrian Financial Market Authority (Austrian FMA) which restricts transactions under Article 20 of Regulation (EU) No 236/2012 of the European Parliament and of the Council of 14 March 2012.
This applies to shares admitted to trading on the regulated market of the Vienna Stock Exchange and for which the Austrian FMA is the relevant competent authority.
This measure is effective immediately until the end of the day on 18 April 2020.
The exact scope of this measure and the exemptions are specified in the statement issued by Austrian FMA.
The FCA has not introduced such a ban. Most European NCAs have not introduced such bans. Nor has the United States or any other major financial market.
The UK regulator will continue to closely monitor market activity, including short selling activity. Aggregate net short selling activity reported to the FCA is low as a percentage of total market activity and has decreased in recent days. It will continue to fluctuate, but there is no evidence that short selling has been the driver of recent market falls.
A great many investment and risk management strategies rely on the ability to take ‘long’ and ‘short’ positions. These benefit a wide range of ordinary investors including the pension funds for employees of companies and local government. We also note that short selling is a critical underpinning of liquidity provision. The loss of these benefits would need to be carefully balanced before determining that any intervention to prevent short selling was appropriate.
London inter-bank offered rate (Libor) transition plans
The FCA, Bank of England (BoE) and members of the Working Group on Sterling Risk-Free Reference Rates have discussed the impact of the coronavirus on firms’ Libor transition plans over the coming months.
The central assumption that firms cannot rely on Libor being published after the end of 2021 has not changed and should remain the target date for all firms to meet. The transition from Libor remains an essential task that will strengthen the global financial system. Many preparations for transition will be able to continue.
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There has, however, been an impact on the timing of some aspects of the transition programmes of many firms. Particularly in segments of the UK market that have made less progress in transition and are therefore still more reliant on Libor, such as the loan market, it is likely to affect some of the interim transition milestones.
Alongside other international authorities, the BoE, FCA and Working Group will continue to monitor and assess the impact on transition timelines and will update the market as soon as possible.
In line with the latest UK Government announcement, our current advice to banks and building societies is that they should keep branches and contact centres open, where possible, as they are deemed essential for civil and commercial functions.
We do encourage banks and building societies to take the necessary precautions to keep their staff and customers safe, in particular following National Health Service (NHS) guidance.