Today the regulators have weighed in significantly to offer firms real help to get through the short-term issue of finalising their year-end. In what is to our knowledge an unprecedented statement the PRA, FCA and the FRC have issued a joint statement, which in itself is unprecedented, but the language used is almost unheard of.
They have “strongly recommended” that listed firms review all elements of their timetables for publishing their financial statements. The only time we have ever seen that language used is in private letters to firms usually preceding the commencement of regulatory action against the firm.
I doubt there is anyone in the London or UK insurance market who will not welcome this help from the regulators so often criticised. It is often a tough job, but we think they got it right this time.
Given the significant investment in the London Market from overseas insurance groups which operate here, we hope that the regulators in the US, Australia, Japan, France, Germany, Switzerland and elsewhere follow suit.
What help have they provided?
The key piece is an extension of time in which to publish audited financial reports from 4 months after year-end to 6 months.
This will allow firms to do a number of things, but the key ones will no doubt be to allow everyone who is currently working remotely, that is firms their auditors and their advisors such as actuarial firms, a bit more time. It also will allow firms more time to review their operations and possibly have a better understanding of the impact of Covid-19 on the businesses.
Further support for this critical offer of help from the regulators comes in the form of the following:
- A delay to the timing requirement for filing accounts at Companies House;
- The ability to postpone tenders for auditors, even if rotation was mandatory for this year;
- The ability to postpone rotation of audit partners, again even if mandatory this year;
- Delays and extensions to FRC consultations;
- Extensions of deadlines for reporting to public bodies.
The FRC have added to this list by giving some guidance on areas that Boards and Management will no doubt already be considering including the need for mitigating actions to ensure the continuity of effective control environments, the security and maintenance of reliable and relevant information as well as, not surprisingly, the need to pay attention to capital maintenance.
The FCA issued an additional statement, not quite requiring firms to use their capital and liquidity buffers, but making it clear that times like these are why the buffers exist, so they should be considering using them if necessary in order to ensure the continuation of the firm’s activities.
In reviewing resources, the FCA virtually urges firms to consider the use of the government schemes if necessary but equally reminding firms of their obligation to contact their regulators if it appears that they will be unable to continue to meet their capital requirements, or pay their debts when due.
What else might be of help?
First and foremost in our mind would be a statement by Lloyd’s confirming that these unprecedented times with the continuing uncertainty lead them to conclude that firms should be given additional time to file their year-end statements as well as complete activity such as the annual attestation to their Minimum Standards. The latter requires considerable work but is not, in our view, as critical as ensuring that firms are able to continue to provide a service to their clients and operate effectively and efficiently in the current environment.
We are working with a number of firms in the London Market under considerable additional stress due to remediation work underway arising from either S.166 reviews or the Lloyd’s equivalent. We are also aware of many other firms in the same position. Firms will have project plans in place with tight deadlines which have been approved by regulators. Without downplaying the importance of firms meeting regulatory expectations, we believe that a statement from Lloyd’s and the FCA that they will look favourably at project completion date extensions would be very welcome. Firms could then put forward their proposals and seek agreement on a case by case basis.
If you would like to know more or need assistance, please contact us.