Alert

COVID-19 and UK Enforcement Authorities


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Uncertainty is the new normal. UK criminal and regulatory enforcement authorities, like the rest of us, are adjusting to unprecedented levels of business disruption. This alert provides signposts to the guidance given by key authorities so far about immediate steps they are taking in response to the outbreak and the difficulties it causes. We will update this information with key developments as they happen.

We recognise that the current situation will bring many difficult and highly specific scenarios, many of which will not be covered by the guidance issued by authorities. We are ready to help businesses and individual decision-makers to work through these.

Competition and Markets Authority

On 25 March, the Competition and Markets Authority (CMA) issued guidance on how it will enforce antitrust laws without impeding necessary cooperation between businesses in light of COVID-19. The guidance details under which circumstances the CMA will not take antitrust enforcement action and also gives practical examples for businesses.

The CMA has indicated that it will not take enforcement action in respect of temporary coordination between firms, provided such coordination is undertaken solely to address a critical issue arising from COVID-19 and:

  • is appropriate and necessary in order to avoid a shortage, or ensure security, of supply;
  • is clearly in the public interest;
  • contributes to the benefit or wellbeing of consumers; and
  • lasts no longer than is necessary to deal with these critical issues.

The guidance provides that this approach to enforcement priorities will be reflected with the CMA’s interpretation of section 9 of the Competition Act 1998, which provides that coordination is exempt from competition law if sufficiently beneficial to the public.

That said, the CMA has emphasised that it will not give a ‘free pass’ to businesses and will not tolerate businesses exploiting the crisis as a ‘cover’ for non-essential collusion, foreclosure or excessive pricing. The CMA has made clear that the following will remain enforcement priorities:

  • businesses exchanging with their competitors commercially sensitive information on future pricing or business strategies, where this is not necessary to meet the needs of the current situation;
  • retailers excluding smaller rivals from any efforts to cooperate or collaborate in order to achieve security of supply, or denying rivals access to supplies or services;
  • a business abusing its dominant position in a market (which might be a dominant position conferred by the particular circumstances of this crisis) to raise prices significantly above normal competitive level;
  • collusion between businesses that seeks to mitigate the commercial consequences of a fall in demand by artificially keeping prices high to the detriment of consumers; or
  • coordination between businesses that is wider in scope than what is actually needed to address the crisis.

Taking this together, and in light of the UK government’s recent statements against profiteering, the CMA will be particularly focused on price increases over the coming months, particularly those of pharmaceuticals and essentials.

Overall, the guidance indicates that antitrust enforcement action in the UK is very unlikely if it can be demonstrated that the behaviour in question is necessary to address an issue that relates to the COVID-19 crisis. It is therefore critical for businesses to ensure they meet the CMA’s criteria prior to engaging in cooperation discussions with competitors and to seek advice from their legal teams. Whilst the CMA cannot reassure businesses that their behaviour may be exempted and encourages businesses to self-assess, the CMA has indicated that it is open to providing informal guidance on a case-by-case basis if the matter is of critical importance.

This guidance followed an open letter sent by the CMA to businesses in the pharmaceutical and food and drink industries on 20 March warning that they should not capitalise on the current situation by charging unjustifiably high prices for essential goods or making misleading statements about their efficacy.

Crown Prosecution Service

On 31 March, the Crown Prosecution Service (CPS) and National Police Chiefs’ Council (NPCC) issued an interim protocol on how police will manage charging in light of the Covid-19 outbreak.

The protocol notes that UK courts are unable to start any new jury or summary trials, and that there are not currently working digital solutions to enable consistent operation of virtual court. Therefore the police and CPS should carefully consider what new offences to bring based on the category of the case: (A) Immediate – Custody and All Covid-19 Related Cases, (B) High Priority Cases – Non-Custody Bail Cases, (C) Other Cases – Released Under Investigation or No Arrest Required.

Immediate cases are those where investigators are seeking remand in custody following the charging decision; the protocol includes examples of such cases which includes serious violence and homicide, terrorist act offences and Covid-19 related offending such as fraud or assaults on emergency workers. For these cases, the defendant will be placed before the next available court.

For High Priority cases such as less serious assaults, police should charge with a long court bail date which will “hopefully allow the current crisis to have passed” to enable future hearings. Other cases – which the protocol notes do not necessarily “lack serious consideration” – include large, complex investigations such as in complex fraud cases where investigations often carry on for a long time before charges are brought. The protocol suggests that a specialist virtual fraud court could be set up to manage these types of matters. See our separate protocol here. “Other” cases also include offences of a less serious nature, road traffic offences, and summary only offences which should be listed either through postal requisition or summons 84 days after the issue of the proceedings.

Financial Conduct Authority

The Financial Conduct Authority (FCA) has issued and is maintaining separate information pages for firms and consumers. See our separate publication on the guidance for firms (as at 17 March) here.

On 19 March, the FCA added a specific information page for general insurance firms, setting out its expectations about how firms should treat consumers in relation to issues connected with the outbreak.

On 20 March, the FCA released a separate page aimed at helping firms to identify which of their staff are “key workers” for the purposes of the restrictions imposed by the UK government on educational provision. The page does not contain prescriptive or binding guidance, but states that the FCA expects that numbers of “key workers” will be limited. It sets out examples of the types of roles it considers essential for the functioning of the financial system. The list set out by the FCA as types of roles which may fall within the definition includes individuals essential to the running of the firm, including those covered by the Senior Managers Regime, together with individuals essential to the provision of a range of customer facing and support functions. The page also recommends that CEOs of financial services firms should ensure that an appropriate system is put in place to identify “key workers” and suggests that “key workers” should be issued with a letter (signed by an individual of appropriate seniority) confirming their status as such.

On 27 March, the FCA issued a further separate statement on work-related travel and the responsibilities of Senior Managers. It makes clear the FCA’s expectation that the number of individuals physically present in firms’ offices or business continuity sites will be far lower than the number required to ensure that all of a firm’s business activities continue to function on a business as usual basis. In particular, it makes clear that the FCA does not expect that financial advisers, staff who can safely and securely trade shares and financial instruments from home, business support staff such as IT staff (unless they are looking after specific equipment or technology) or claims management companies and those selling non-essential goods and credit should go to work or meet face to face.

On 21 March, the FCA wrote to all companies it is aware are due to publish preliminary financial statements imminently to request that they delay doing so for at least two weeks. Further to this, on 26 March, it released a Statement of Policy allowing listed companies requiring additional time to complete their audited financial statements an extra two months to do so. The statement also urges market participants not to draw adverse inferences in relation to decisions by companies to use the additional time now afforded to them.

The statement was published as part of a package of measures brought forward jointly by the FCA, Prudential Regulation Authority and Financial Reporting Council. For further details, see the sections of this table below relating to those agencies.

The European Securities and Markets Authority (ESMA) has also published its own webpage on COVID-19 related issues, making specific recommendations in relation to business continuity, market disclosure, financial reporting and fund management. Please see our separate publication here.

On 23 March, the FCA added new sections to its previously published information pages for firms dealing with how firms should treat consumers in persistent debt, together with other practical measures aimed at facilitating access to cash for consumers.

On 25 March, the FCA has now released brief information (as part of its information page for firms) about  the operation of the Senior Managers and Certification Regime during this time. It has confirmed that it does not require firms to have a single Senior Manager responsible for the coronavirus response and that firms should allocate responsibilities in the way which best enables them to tackle the risks they face. It has identified individuals holding the SMF 2 and SMF 24 functions as amongst those likely to have particular responsibilities relevant to the response to the outbreak (in these cases in relation to financial resilience and operational resilience respectively). It has also reminded firms that it considers that their approach to identifying “key workers” should be overseen by the SMF 1 (CEO) within firms (see further details above). Practical issues for firms and individuals within them will include how Senior Managers may demonstrate that they have taken “reasonable steps” in relation to decisions taken in connection with the current situation and how best to seek to ensure that certification and Conduct Rules training processes continue if possible. Also on 25 March, the FCA added to a pre-existing information page to confirm that the date for publication of the directory of certified and assessed persons has been delayed by at least one month from the previous end of March date. The page states that the timing of the launch of the directory is under review and that further updates will follow.

The FCA has not as yet followed some other European markets regulators (for example those in Italy and Spain) in imposing restrictions on short selling. On 23 March, it published an additional information page on short selling suggesting that it has no plans to impose such restrictions at present.

On 25 March, the FCA issued a statement that firms must still meet the end of 2021 deadline to transition from LIBOR, but admitted that it may difficult for firms.

On 26 March, the FCA published an information page similar to that issued an information page similar to that issued by the National Crime Agency (see further details below) aimed at giving consumers details of the types of scams which may become prevalent during the Coronavirus outbreak. See our 30 March publication here.

On 31 March, the FCA issued a Dear CEO letter to firms providing services to retail investors. The letter provides clarification on the approach it has taken to requests for adaptations to its regulatory approaches by firms and trade associations. It makes clear that it has adopted a three-pronged approach involving (1) working with firms and trade associations to make changes to help firms or consumers in order of harm or urgency where it has the power to do so, (2) responding to changes requested which would help firms of consumers but which require some coordination with the UK Government or European authorities (which, it notes, may take more time) and (3) refusing requests which it considers are not in the interests of consumers or which would hamper the response to the crisis situation. In respect of the latter category, the FCA notes that it will reflect on whether requests are opportunistic or designed to undermine consumer protection and “will reflect on what this tells us about the firms involved or conduct in the sector”.

The letter also sets out details of its approach to the following specific issues:

  • Anti-money laundering: client identity verification – the FCA has confirmed that this process must still take place, but that it may take place remotely using additional technology based checks as appropriate whilst restrictions on travel remain in place. The letter makes clear that additional verification should be undertaken once restrictions on travel are lifted for the relevant client group;
  • Best execution – the FCA has been working with ESMA in relation to concerns raised by firms about whether they should be fulfilling their best execution obligations. It refers to separate information published by ESMA on best execution reports under MiFID II and confirms that whilst firms are expected to consider how they are managing risk, it does not intend to take enforcement action where a firm does not publish RTS 27 by 1 April 2020 (provided it does so by no later than 30 June 2020) or does not publish RTS 28 and Article 65(6) reports (provided it does so by no later than 30 June 2020).
  • Depreciation notifications – the FCA has clarified that it has no intention of taking enforcement action where firms have (1) issued at least one notification to retail clients within a current reporting period indicating that their portfolio has decreased in value by at least 10 per cent (as required under relevant provisions in the Conduct of Business Sourcebook) and subsequently provides general updates through its website, other public channels and/or generic non-personalised client communications or (2) chooses to cease providing 10 per cent depreciation reports for any professional clients.
  • Pause on implementation of investment pathways and platform switching provisions – work with firms providing defined benefit transfer advice will continue and the policy statement on pension transfer advice has been delayed to Spring 2020.
  • Financial resilience – the FCA has supplemented guidance issued on 26 March to clarify that government schemes to help firms deal with the impact of the outbreak can be used to help firms to plan for how they will meet debts as they fall due and remain solvent, but may not be used to meet capital adequacy requirements.

Also on 31 March, the FCA added briefly to the section of its information page for firms to emphasise its expectation that it expects firms to provide support to consumers and businesses. It has not yet provided detailed additional information responding to concerns raised in the media relating to the terms on which government-backed funding is being made available to businesses (although a letter was sent to the CEOs of UK banks by HM Treasury, the FCA and the PRA on 25 March setting out their collective expectations in this area).

Financial Reporting Council

The Financial Reporting Council (FRC) has issued guidance in relation to audit issues (16 March), separate guidance for auditors (16 March) and  a further publication containing practical points in relation to how to hold annual general meetings (18 March). It has also drawn attention to Companies House guidance on extensions for filing deadlines (19 March).

On 23 March, the FRC confirmed its support for the FCA’s request for companies due to publish preliminary financial statements to impose a moratorium of at least two weeks (see above).

On 26 March, the FRC (as part of a coordinated series of measures produced with the FCA (see above) and the Prudential Regulation Authority (see below)) published further specific information on:

  • Corporate governance;
  • Management information;
  • Risk management and internal controls systems;
  • Dividends and capital maintenance;
  • Corporate reporting;
  • Strategic reports and viability statements; and
  • Financial statements (with particular emphasis on assessments in relation to (1) going concern and material uncertainties, (2) significant judgements and estimation uncertainty and (3) events after reporting dates.

On 1 April, the FRC issued a statement on behalf of the Pre-Emption Group making clear its recommendation that investors consider supporting issuances of up to 20 per cent on a case by case basis.

HM Revenue & Customs HM Revenue & Customs (HMRC) has not yet issued any specific guidance relating to enforcement or supervision.
Information Commissioner’s Office

On 12 March, the Information Commissioner’s Office (ICO) issued a statement for health and care practitioners in respect of data protection and coronavirus which emphasised the fact that data protection and electronic communications laws do not stop the Government, the NHS and other health professionals form doing various things designed to protect against serious threats to public health and confirming that the ICO will take into account the compelling public interest in the current health emergency regarding data protection compliance.

On 16 March, the ICO issued a question and answer document giving general data protection advice for data controllers. See our separate publication (17 March) here.

On 18 March, the ICO published a short document aimed at data subjects about particular commonly occurring data-related issues including those relating to the provision of health information and the likelihood of delays to responses to data subject access requests.

On 24 March, the ICO issued an announcement stating that its offices will be closed from 24 March and providing alternative contact details.

On 26 March the ICO published a blog post entitled “Community groups and COVID-19: what you need to know about data protection”, which includes data protection advice for community groups assisting the vulnerable in communities during the COVID-19 pandemic.

On 26 March the ICO also launched a new data protection and coronavirus information hub to help individuals and organisations navigate data protection during the COVID-19 pandemic. This hub includes links to the resources outlined above and certain additional information (e.g. information on Freedom of Information (FOI) and coronavirus.

National Crime Agency

Unlike its US counterparts, FINCEN (see our 17 March publication here), the National Crime Agency (NCA) has not yet published specific guidance on delays or expectations for reporting, including of anti-money laundering and counter terrorist financing suspicious activity reporting (SAR).

 The NCA has however issued guidance to individuals and businesses on the ways criminals are exploiting the crisis to commit fraud. See our separate publication (26 March) here. The US Department of Justice has issued similar anti-fraud guidance. See our separate publication (26 March) here.

However, neither the NCA nor any other authority has yet issued any guidance on whether it is experiencing particular difficulties in processing SARs submitted to it within statutory deadlines or on the extent to which the current situation may amount to a “reasonable excuse” for not filing a SAR.

For the time being, these processes appear to be running as normal. There has not been any suggestion of amendments to the duration of the “notice period” following the filing of SARs (seven working days). There has similarly not yet been any indication of whether practical difficulties encountered by the NCA in progressing investigations may form the basis of successful applications for extensions to the moratorium period (i.e. the period following confirmation from the NCA that consent to taking particular actions is denied) or of whether the NCA or the courts will show forbearance in respect of delays by parties complying with orders such as unexplained wealth orders in complying with stringent time limits.

Office of Financial Sanctions Implementation

The Office of Financial Sanctions Implementation (OFSI) has recommended that queries are sent to the OFSI mailbox (OFSI@hmtreasury.gov.uk) with clear explanations of urgency.  It has indicated that it will continue to operate as close to normal during the outbreak, although it has indicated that timescales will be longer (but that it will prioritise urgent and humanitarian cases). It is issuing lists detailing designations as normal and is progressing ongoing enforcement cases.

The US Office of Foreign Assets Control (OFAC) has issued guidance on humanitarian aid and medical sales to Iran in response to COVID-19. See our separate publication (18 March) here.

Prudential Regulation Authority

On 23 March, the Prudential Regulation Authority (PRA) issued its first specific information in relation to COVID-19, publishing an information page setting out delays it will be prepared to accept in relation to Solvency II harmonised reporting (which mirrors statements made by the European Insurance and Occupational Pensions Authority).

On 24 March, the PRA released an information page for banks, building societies and credit unions setting out its current guidance that branches and contact centres should remain open where possible.

On 26 March, as part of a coordinated package of measures released jointly with the FCA and FRC (see above), the PRA published information on the approach to be taken by banks, building societies and PRA-designated investment firms on the assessment of expected loss provisions under IFRS9.

On 30 March, the PRA issued a statement on its approach to VAR back-testing in the light of market volatility resulting from the COVID-19 outbreak.

On 31 March, the PRA published letters sent to the seven largest UK systemically important deposit takers on dividend payments, share buybacks and cash bonuses. The letters included requests for the cancellation of any outstanding 2019 dividends, set out the PRA’s expectation that cash bonuses should not be paid to senior staff and indicated that the PRA was ready to use its supervisory powers if the banks concerned did not agree to the requests made. The letters were followed by a statement by the PRA later on 31 March reiterating the PRA’s expectations as set out in the letters and making clear that the Bank of England considers that banks have strong capital positions and that it is not expected that they will need to use the capital preserved in order to maintain adequate capital positions, but that the extra headroom provided by taking a sensible precautionary approach at this stage should help the banks support the economy.

Also on 31 March, the PRA published a Dear CEO letter sent to UK insurers making clear that it expects boards considering distributions to shareholders or the level of variable remuneration awards to pay close attention to the need to protect policyholders and maintain safety and soundness.

Serious Fraud Office

The Serious Fraud Office (SFO) has not yet published any specific guidance on aspects of how it proposes to conduct investigations or prosecutions during the outbreak. It has indicated that it is currently not able to deal with paper correspondence in a timely fashion and has invited correspondence by email (although it has issued a reminder that email is not entirely secure).

At least one high profile ongoing trial has been adjourned and it looks likely that there will be significant delays to others currently scheduled as the Lord Chief Justice has now ordered that no new jury trials may be commenced until further notice.

As with the NCA, the SFO has not yet indicated the circumstances in which subjects of orders requiring information to be provided or documents produced may claim that they have a “reasonable excuse” for not doing so in the current situation.

Other developments

On 20 March, the UK Government issued a list of “key workers” for the purposes of continuing school provision. Those listed should not be prevented from working due to childcare issues, although clearly operational effectiveness may still be reduced by other factors during the outbreak. The list includes police and NCA staff and individuals “essential to the running of the justice system”. Staff from other agencies named above are not explicitly included, although they may be deemed to fall within some of the widely drawn categories in some circumstances. See above for details of specific guidance issued by the FCA in relation to the identification of “key workers” within the financial services sector, and steps it considers financial services firms should be taking in relation to this.

On 23 March, the UK Government imposed “lockdown” restricting movement of all individuals for an as yet undefined period (subject to review after three weeks), with only very limited exceptions. For full details, see our separate alert here.

On 28 March, the UK Government announced the temporary suspension of insolvency rules relating to wrongful trading. See our 30 March alert here and our separate 31 March publication providing some details of the enforcement context and relevant insolvency related provisions which remain in force here.

Legislative developments – emergency powers

The Coronavirus Act received royal assent on 25 March, and has now passed into law. It contains a range of practical measures aimed at countering the effects of the outbreak. It proceeded quickly through Parliament and was not substantively amended or supplemented during its passage. On 25 March, it was announced that the UK Parliament would rise for the Easter vacation (earlier than planned) once this legislation has completed its passage. It has now done so, although it could be recalled if necessary. Other powers, such as those relating to enforcement of “lockdown” restrictions, may be enacted by way of statutory instruments.

On 26 March, regulations were passed putting the UK government’s “lockdown” instruction on a statutory footing and giving police powers to fine those not complying. Further powers may be introduced in the same way (i.e. by way of statutory instrument) as necessary in due course.

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