A new arrangement between HMRC and the FCA highlights the need for advisors to remain vigilant of their compliance obligations surrounding furloughed staff.
A collaboration agreement between the FCA and HMRC, announced on May 1st 2020, has the potential for the levels of furlough claims and client support services to be more efficiently scrutinised.
Vicky Pearce, director of B-Compliant, says: “This is an indicator that the conduct of firms during the current crisis, including the use of temporary financial support packages, could become a new area of focus by the regulator alongside ensuring clients are getting the right level of service.
“If you are furloughing staff and you are considering making use of the extension of the scheme to October it’s important to closely analyse its necessity for your business as the crisis evolves.”
So, rather than automatically extending furlough claims at a time when many clients need more support than usual, you should consider reviewing each individual case based on the financial impact you are experiencing and the level of advice required by clients.
How appropriate are your furlough claims?
Revenue for many advisory firms is recurring and is directly linked to the performance of the markets. The question becomes how appropriate are the level of furlough claims you are making in relation to the actual negative impact on your business?
The point of the scheme is to provide an alternative to making redundancies not to make up for lost recurring revenue which should already be countered by the business strategy.
In our experience of the crisis so far, where revenues have dropped significantly at firms as a result of stock market falls or clients stopping services, the proactive advisors are reflecting these losses in appropriate levels of furloughing.
However, as the scheme extends and evolves until October with the ability to recall staff part-time, firms will need to ensure they remain compliant with the FCA’s key business principles. In particular, the need for integrity and acting in the best interests of clients.
Under the agreement, the FCA will be the subscribing authority and HMRC will be the supplying authority. This agreement is in effect already and you can find the news on the FCA website here.