1875 - Autumn 2020 - Entity and Intermediary

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A PUBLICATION NEW PUBLICATION FROMFROM REDMAYNE REDMAYNE BENTLEY BENTLEY

SUMMER 2020 AUTUMN 2020

WINNERS & LOSERS

Fresh lockdowns and their impact on markets

VIRTUAL REALITY: ESCAPISM IN A PANDEMIC Its growth, its evolution and the potential tailwind of a winter lockdown

TOUR DE GARAGE: THE GAMIFICATION OF HOME WORKOUTS A social movement, changing the face of exercise

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CONTENTS

INTRODUCTION 3 Winning in a Pandemic: Fortune, or Preparation?

INSIGHT 4 Winners and Losers

VIRTUAL REALITY: ESCAPISM IN A PANDEMIC

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THE DICHOTOMY OF A RALLY

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Focus on Cineworld and Ocado

TOUR DE GARAGE: THE GAMIFICATION OF HOME WORKOUTS

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CHANGING CONSUMER HABITS

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THE FCA HAS EXTENDED A HAND

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“Fortune and bad luck have play in the destiny of many businesses truly winning and losing is wha

yed a large part s, but the key to at comes next.”

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WINNING IN A PANDEMIC: FORTUNE, OR PREPARATION? JAMES ROWBURY | INVESTMENT RESEARCH COORDINATOR Surviving the ‘new normal’ has been the key challenge for many industries, but with new and exciting growth stories rife, we look now towards their capacity to maintain these new markets in a postpandemic world. The end seems a long way off, but has it opened new ways of working and playing or were these new practices just a necessity to get us through unprecedented circumstances?

The summer climate and easing of virus cases has given businesses time to claw back sales and take stock. Time to reflect on their own handling of the pandemic and gear up for the winter months.

Perhaps the reopening of the high street, hospitality and leisure sectors has lulled many into a false sense of security. For a brief time, it felt like we were heading back for normality.

Fresh lockdowns and ever-changing guidelines have rocked us once again; starting in Northern conurbations, and undoubtedly set to spread across the country, curfews and restrictions have left us with a much more disparate outlook for certain industries. Pubs with the capacity and infrastructure to maintain a steady daytime footfall may fair ok, but late bars and music venues are on course for their final blow (See: The Dichotomy of a Rally).

Clearly, the choice is limited for some industries and their fate remains firmly in the hands of an invisible enemy.

Entire business models have been built on a market which just isn’t there anymore; airlines and office landlords have an enormous burden to bear with compounding maintenance costs and no custom.

IT upgrades are expensive and built into every company’s strategic business plan with the aim to drive efficiency and save costs. At the beginning of the pandemic, and in a matter of weeks, company executives had ticked off a decade’s worth checklist of Tech to-dos.

They couldn’t have achieved these feats without the outside help of established IT service providers, who are now proving winners, capable of profoundly

changing business operations at a lower cost (See: The Winners and Losers).

Beyond our working life, we see new opportunities for the coming months.

Video gaming is an industry that has been making waves in the last decade: despite its rise in popularity over 40 years ago, the age of high-speed internet and online streaming has catapulted the industry into a new era. With e-sports becoming a reputable pastime and the cold winter days forcing lockdown entertainment indoors, we see a chance for the industry to hoover up a new market (See: Virtual Reality: Escapism in a Pandemic).

For the more health conscious individuals, the prospect of gym closures seems almost unthinkable. The more fair-weather fitness enthusiasts will look to technology once again to keep their regimes in check. Equipment in the home no longer needs the floorspace only achievable by the largest of houses.

A cycling trip to the Alps no longer needs the expense of hotels, plane tickets (including the additional baggage cost), or the ability to read a map. All of this can be done with a small room and the cost of an annual gym membership, without even leaving the house (See: Tour de Garage: The Gamification of Home Workouts).

Fortune and bad luck have played a large part in the destiny of many businesses, but the key to truly winning and losing is what comes next. Rapid growth will require even the most exciting pandemic success stories to adapt and convince their customers that these gimmicks are not just for Christmas, but a new normal.

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INSIGHT THE WINNERS AND LOSERS BEN STANIFORTH | RESEARCH ANALYST

The COVID-19 crisis has undoubtedly changed the way we live, interact and work, with endless Zoom meetings and masked trips outside the confines of our houses not something anyone could have anticipated last year.

The pandemic has also highlighted the need for businesses to adapt quickly to changing situations, with those industries less nimble and who typically lack innovation, seemingly hit the hardest.

While it would be hard not to argue that each and every business and economic sector has been impacted in one way or another, some have performed better than others and a select few have flourished, owing to their flexible business models and strong demand for innovative work from home solutions. Many businesses lend themselves to a work from home environment simply due to the products which they sell. More traditional sectors, however, such as Travel & Tourism and Energy have struggled to adapt, largely

due to the nature of their business models and products that require large-scale consumer demand, much of which has now been eliminated.

Second quarter 2020 earnings paint a clear picture of the initial winners and losers of Coronavirus, the rift created has exposed the gap between companies best suited to changing conditions and those who rely on tried and trusted methods created decades ago. During second quarter, the IT and Healthcare sectors

S&P 500 REVENUE GROWTH: Q2 2020 10% 5% 0% -5% -10% -15% -20% -25% -30% -35% -40% -45% -50% -55% INFO TECHNOLOGY

TODAY 3.9%

HEALTH CARE

CONSUMER STAPLES

FINANCIALS

COMM. SERVICES

UTILITIES

REAL ESTATE

S&P 500

MATERIALS

CONSUMER DISC.

INDUSTRIALS

ENERGY

3.1%

-0.6%

-1.3%

-3.9%

-4.9%

-6.9%

-9.8%

-15.3%

-16.0%

-24.9%

-54.0% Source: FactSet

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EASYJET PASSENGER NUMBERS (m) 1Q 16

16.1

Q3 16

20.2

1Q 17

17.4

Q3 17

22.3

1Q 18

18.8

Q3 18

23.1

1Q 19

21.6

Q3 19

26.4

1Q 20 Q3 20

22.2

0.1

were the only areas of the US business economy to record revenue growth, at 3.9% and 3.1% respectively. Industrials, however, suffered due to a lack of demand and high-fixed costs, with the Energy sector feeling the majority of the effects of the pandemic owing to a significant reduction in demand for its products, sending revenues down -24.9% and 54% respectively, with little sign of a full recovery in the short term.

This has meant, that with declining rent collection rates and limited pipeline opportunities for expansion, such investments have suffered. Investors have also seen the writing on the wall and pulled their money at record rates. The UK Commercial Property REIT sector average currently trades at a -12.6% discount to the actual value of the properties within the funds themselves and is down more than -23% this year.

THE LOSERS An area that has received a lot of attention from investors, owing to its disastrous performance in recent months, has been investment vehicles within the commercial property sector.

Real Estate Investment Trust (REIT), as well as property funds, once popular amongst income-seeking investors due to their predictable and consistent dividend payments, have rotated out of favour, leaving many deeply discounted. The COVID-19 pandemic has turned the commercial property sector on its head, with many worried that the future of work now contains significant working from home capabilities, with companies opting to scale back or even eliminate their physical working footprint.

The old saying “an asset is only worth what someone is willing to pay” highlights another challenge facing the sector - valuing property when no one is willing to buy. Many funds have struggled to value their portfolios since lockdown, contributing to the suspension of the Legal and General UK Property Fund earlier this year. Going forward, we would expect this will likely continue to produce a drag on performance, with more property funds likely to remain suspended for the near future.

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Airlines have also seen a collapse in demand following global lockdowns and social distancing guidelines. With an increasing number of countries experiencing a second wave of cases,

passenger fears over travelling abroad and either flying back mid-holiday or spending two weeks in quarantine due to government restrictions, have increased.

Discount airlines have suffered especially due to their need for a high load factor, a metric used in the aviation industry to describe the percentage of available seats that are sold. Given such restrictions, coupled with the already thin margins that airlines possess, additional financial raises have been both necessary and predictable. EasyJet has already undertaken a £419m equity raise in June, as well as the sale and leaseback of many of its planes in order to shore up its balance sheet.

THE WINNERS However, from disaster often emerges opportunity. The COVID-19 pandemic has forced firms into the 21st century, upgrading their IT capabilities within just a matter of weeks. This has provided an uplift for software and remote working firms worldwide who have been able to aid firms in the transition to working from home.

With many of the remote working companies within the technology sector,

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it is no wonder that such firms have been able to weather the storm, with some benefiting as a direct result, owing to the products they provide and the resilience of their business models. SaaS, or software-as-a-service, a business model whereby a firm’s software is rented to other firms on a subscription basis, allows companies to increase their downside protection. During times of economic stress, firms utilising the SaaS subscription model are likely to maintain higher retention levels, with their customers more likely to continue paying a relatively small monthly subscription licence fee rather than funding a one-off expensive software purchase. Firms like Adobe perfectly highlight the benefits of the SaaS model.

While Adobe’s revenue growth rate has slowed slightly during the pandemic, the firm has seen a demand tailwind in many areas of its business, owing to the spike in people working from home. With customer retention rates also remaining high, Adobe has been able to record two consecutive quarters of 14.2% revenue growth versus -9.8% and an estimated -5.1% for the broader S&P 500.

Given the restrictions on social gatherings, especially during full lockdowns, consumers have been looking for activities to keep them occupied.

Many opted to renew their Netflix subscriptions or buy the latest video games but with the lack of day-to-day physical exercise, many have taken up outdoor and indoor exercise to keep fit.

While the athletic apparel sector has seen a significant downturn in retail sales, many that already possess an online presence have seen impressive e-commerce growth. Nike grew online sales 83% during its recent first quarter earnings, which now account for 30% of total sales penetration and increasing the firm’s direct to consumer sales percentage to 35%, its highest ever.

This has allowed the firm to cut out its third-party middlemen, creating a clear roadmap to direct-to-consumer increased profitability in the future.

IS IT SO CLEAR CUT? While the initial impact of Coronavirus has created a rift between those sectors that have been adversely affected and those that have held up well, we would likely expect to see this widen, at least in the short/medium-term. It is likely that the timeline for the hardest hit sectors to get back on their feet will be continually extended as restrictions are tightened and extended for the foreseeable future. This lack of visibility and demand headwind will likely keep shares depressed in those industries most affected. Cynics might, however, highlight that the pandemic is likely to accelerate the adoption and expansion of ‘new world’ businesses, replacing the ‘old economy’ and ultimately pushing humanity forward and directing capital towards areas that focus on innovation as well as environmental and social issues.

“While the initial impact of Coronavirus has created a rift between those sectors that have been adversely affected and those that have held up well, we would likely expect to see this widen, at least in the short/mediumterm. It is likely that the timeline for the hardest hit sectors to get back on their feet will be continually extended as restrictions are tightened and extended for the foreseeable future.”

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VIRTUAL REALITY: ESCAPISM IN A PANDEMIC ALICE SPINOLA | INVESTMENT RESEARCH Since the release of the Atari 2600 in the late 1970s, games consoles have been a staple part of the furniture in family homes around the world.

However, the concept of video games has been around since the 1950’s. Over 60 years on, they have evolved significantly, becoming more lifelike than ever and with technology improving and consumer expectations soaring, so do their price tags. In today’s world, the industry now dwarfs the movie and music sectors combined, with over two billion gamers across the world (26% of the world’s population). Analysts predict that by 2022, the gaming industry will generate up to US$200bn in revenue, enticing established tech giants including Google, Facebook and Apple to enter the industry.

Microsoft, which remains a stalwart of the gaming industry through its popular Xbox console, recently launched Project xCloud; a streaming service that allows users to stream Microsoft’s Xbox games to PCs and other devices. In 2016, Facebook began to develop a gaming platform with Unity Technologies, providing a game development framework for people to make video games. Google, on the other hand, launched its Stadia program, allowing users to play high-quality video games via internet streaming, without the need to use a disc or download the game.

As the world moves more towards a life centred around mobile phones, the main goal for these companies is to allow players to stream video games without the need for a computer or console. Subscription streaming services are likely to be the future and will benefit video game companies as manufacturing and shipping costs will essentially vanish. With the introduction of virtual reality, video games are now able to offer a fully immersive experience. Oculus VR, a subsidiary of Facebook, is focused on improving the quality of

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its current virtual reality headset, and was expected to be released in October 2020, Apple is also to release a headset in 2021 or 2022.

As people across the world shelter at home from the Coronavirus pandemic, game sales have experienced a global surge. In the UK, digital downloads jumped 67% week-on-week during March and, just before the national lockdown was enforced, physical sales rose by 218%. Research suggests that in order to battle the isolation caused by the pandemic, more and more people are turning to video games as a way of coping with COVID-19 and playing games online was seen a way for people to socialise with their family and friends.

Within the first four weeks of lockdown the number of users logging into Twitch, an online video gaming streaming platform, rose by 50%, while demand for the Nintendo Switch reached a record high; profits surged by more than 400% in its first quarter ending 30th June. Furthermore, with the absence of traditional live sports, the pandemic has accelerated the growth of e-sports (competitive video gaming), which has seen a rise in both participant and audience figures.

With another potential lockdown on its way, the gaming industry is likely to see another spike in demand, particularly throughout the winter months when people are less likely to venture out. As it did in the previous lockdown, the industry may see many new first-time players as people at home search for new forms of entertainment. In this otherwise torrid time for many industries, gaming is certain to be a huge beneficiary of social and economic restrictions, carving out a new, hungry, addressable market.

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THE DICHOTOMY OF A RALLY SAUL FULDA | INVESTMENT EXECUTIVE As economists and experts scour through the alphabet looking for ways to describe the economy, I remain convinced that we are witnessing a K-shaped recovery; the polarity between success and failure in the UK market is vast.

industries and with massively contrasting fortunes. One has a bright future ahead, while the other seems destined for further tribulations. This theme is a common thread running throughout the UK market; looking forward six months, there are clear winners and losers.

As further restrictions are imposed on the UK population, On the one hand we have the Cineworld’s of the market; the Leisure, Hospitality and Travel sectors are facing a rocky plagued by debt, in this case a cool £5.9bn, and at the mercy future; the rule of six, fusing with the 10pm curfew and of a clientele hesitant to plump themselves in front of the big already-present social-distancing guidelines, will certainly screens. The company has guided that admissions for the curtail sales growth in pubs, bars and restaurants. Initially, upcoming year will be, at most, 62% of last year’s level. the winner was seen to be the company which More worryingly, under Cineworld’s “severe had the greatest access to outdoor seating, but plausible downside scenario”, loan but with the winter chill already upon us, covenants will be breached in December this has become all but a moot point.

2020 and June 2021. This, alongside “Adaption to the newNow, industry analysts are looking the labyrinthine legal battle with normal is key, but surely towards the companies which take Cineplex following the called-off the smallest proportion of sales merger in June, paints a ghastly Cineworld’s adaption would post-10pm. outlook for the company. It is no lead us to another Netflix, wonder the shares have dropped while for the travel and The question which must c.80% over the past year. then be raised is whether such leisure industry, the only companies can do anything On the other end of the chance of sitting on the to salvage their business and spectrum lies Ocado, the halfbeach in the Bahamas is reputation. Adaption to the tech half-grocery juggernaut new normal is key, but surely which just keeps powering through a Virtual Reality Cineworld’s adaption would lead forward. The group saw a 52% headset.” us to another Netflix, while for the rise in quarterly sales, driven by travel and leisure industry, the only the initial success of the tie-up with chance of sitting on the beach in the Marks and Spencer, where basket sizes Bahamas is through a Virtual Reality headset. have jumped by around five items since the The digitisation of society is throttling the market into switch out of Waitrose. While Ocado suffer a severe drastic changes. time-lag in trying to boost operational capacity, the renewed restrictions being imposed on the UK are sure to heighten People may heap blame on Brexit and the government, but consumer demand, driving orders per-week and order sizes highly leveraged and poorly-run companies, operating in to loftier levels. Furthermore, the news that Tesco, Britain’s old-economy industries already at risk from organic progress, largest supermarket chain, is reinstating purchasing limits on may have to take a long, hard look in the mirror. There is household staples will further propel fear amongst consumers, a real concern that investors are becoming reliant on the pushing sales further to the upside. Notwithstanding this, ever-growing government to bail-out those in need. ‘Big Ocado failed to generate a profit in the past financial year. But Government’ should be viewed as the exception which breaks there is no need for investors to worry; the shares have still the rule, rather than vice-versa. Therefore, with innovation risen c.110% over the last 12 months. and survival now ever-so-closely linked, some companies may Whether the market is overvaluing Ocado is a topic for another need to wake up and smell the coffee before it is too late. day, but the above depicts two businesses, in two different

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TOUR DE GARAGE: THE GAMIFICATION OF HOME WORKOUTS JAY HUGHES | INVESTMENT RESEARCH

Coronavirus has severely altered our daily lives in all sorts of ways; one is our approach to exercise. The pandemic has meant that many have taken a harder look at their own personal health, or merely found ways to cope with isolation by getting outside and clearing their mind. For those who were already avid gymgoers, the closure of their local gym has forced a change in pattern, and the discovery of alternative options available in the home. Since the early stages of the virus, local governments highlighted gyms as being high-risk locations.

Gyms were entirely closed for a reasonable amount of time, yet now they are open, but limited by an array of restrictions, with many having implemented time restrictions – typically one hour - and bookings systems. This alone has created a barrier for those wishing to use their gym and an added restriction of freedom; no more popping down for that spontaneous pumping of iron! Furthermore, with COVID-19 still rampant in our society, many just don’t feel safe in such an environment.

Fortunately, advancing technology is allowing consumers at home to feel immersed in a gym-like experience. High-tech applications, alongside home cardio equipment, allow people to partake in competitions such as the virtual Tour De France and other famous routes. Thanks to companies such as Lululemon and Peloton, working out from home can be just as enjoyable as the real thing.

Peloton has been a Coronavirus growth story with its techdriven home-workout equipment. Peloton sells home workout equipment such as spinning bikes and treadmills with an integrated screen that can stream twisting Alpine roads for more hardy cyclists, or the beautiful coastal roads of the French Riviera. The bike’s pedals will adjust their resistance to the ups and downs of the terrain, while the interactive screen will provide the performance metrics needed to keep you motivated; all from the comfort of your own home.

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Peloton achieved a profit for the first time since its IPO, turning over US$89.1m from a loss of US$47.4m a year earlier. These results smashed analysts’ earnings estimates. The company has captured a reasonable chunk of the home fitness market and does not expect sales and market share growth to slow down any time soon, with sales crushing estimates with an increase of 172% this year. Peloton is innovative in the way it generates cash flows; not only does a customer have to make a sizeable purchase for a home exercise bike or treadmill with the integrated software, but they also pay US$39 per month to receive workouts and fitness plans etc. Over the past few quarters, the company has built huge brand awareness despite a piecemeal advertising spend, achieving this instead through clothing and merchandising sales. As such, the company has amassed a hefty US$1.8bn in cash, ready to spend on improving and developing its products.

In the last three months, Peloton’s user base has increased 113% from the year before, accumulating a whopping 3.1m members in total including both equipment-needed and equipment-free

plans. Peloton has clearly capitalised on the closure of gyms, but is this solid performance over the Coronavirus period foreshadowing the future of the company, or is it just a fad?

Lululemon is a luxury designer and retailer of athletic clothing and leisurewear, targeting its products to upper-middle-class individuals, and rather than a general mass fitness market, leading to an accidental move into the fashion market.

Lululemon centres its growth strategy around three factors: product innovation, digital growth and accessing international markets. Lululemon, just like Peloton, has observed a surge in demand during the pandemic, as can be seen by its expectationbeating results this year.

It is important to recognise the significance of Lululemon’s growth, at a time when traditional bricks and mortar retailers are surviving hand-to-mouth. Online sales of apparel and accessories were up 157% this year, but with its stores contributing around three quarters of total sales, an increase in online traffic is a welcome one. The company is making strides to crack the international markets; e-commerce sales in China and Europe are now experiencing triple digit growth.

Despite the company’s pedigree in clothing, the recent acquisition of MIRROR, sees Lululemon taking advantage of new consumer trends. MIRROR is very much what it says on the tin; a traditional wall mirror that, once hung and plugged in, becomes an interactive workout screen, where users partake in live home workouts, while keeping an eye on their performance stats. Much like Peloton, customers pay a subscription membership to gain access to new workouts and system updates. At around US$1,000 per unit, it is difficult to see whether customers will find value in MIRROR, particularly in an age where a wearable sports watch can be purchased for just a fraction of the price. The right marketing will be key.

A social movement is changing the face of exercise; the winning formula is not yet clear, but new and innovative products give us a flavour of the future. The ‘gamification’ of home exercise is only likely to increase as the pandemic takes hold of the life we have been used to.

Both Lululemon and Peloton are leading the way; one an apparel company, breaking the home fitness market, the other a home fitness company breaking the apparel market. Both have shown how the synergy of both can drive growth and brand awareness, paving the way for more established players to leverage their brands and replicate the model.

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CHANGING CONSUMER HABITS

The life of the office worker has changed dramatically this year.

Working from home became the norm, leaving city centres across the UK deserted, hitting the retail, hospitality and entertainment industries hard.

Since the initial lockdown began back in March, the habits of workers in all sectors have changed. Whether that be office-based workers, retail staff or those from the Building and Manufacturing sectors - every industry has experienced change this year.

Pre-COVID-19, city-based workers worldwide would contribute to their local economies, purchasing morning coffees, dining out at lunchtime and partaking in a spot of retail therapy at the end of a busy day.

As these norms grounded to a halt during that initial lockdown over seven months ago, businesses, hospitality venues and traditional stores were forced to adapt to avoid disappearing altogether.

While some sectors are still at the mercy of the virus and are unable to operate in even socially distant environments, others are recovering, with some even performing better than before the pandemic.

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During the national lockdown earlier this year, non-essential retail stores were among the worst-affected business following their forced closure. As you would expect, this had a devastating impact on the high street. Footfall on the UK’s high streets fell 34.9% yearon-year in September 2020.

In March 2020, overall retail sales fell by 5.2% as many stores were ordered to close by the UK Government on 23rd March. This decline was then dwarfed by the largest fall on record, with the volume of retails sales dropping by 18.1% in April 2020. When drilling down into this data, clothing sales suffered more than any other area, falling by 50.2% compared to the previous month when it fell by 34.9%.

Although the high street is regaining some of its previous popularity, there is no doubt that online retail became the new norm despite shoppers keeping a tighter hold on their purse strings due to the prospect of financial insecurities.

Online sales as a proportion of all retailing reached a record high of 22.3% in March 2020 as consumers switched to online purchasing during lockdown. This impressive figure then rose to 30.7% in April and 33.4% in May before slowly declining as the year progressed.

With online retail excelling during the temporary closure of the high street, many brands took advantage. Online home appliance specialist AO.com reported a retail sales increase of 62.9% year-on-year during the 16 weeks to 31st July 2020. Similarly, other electrical, homeware and DIY retailers also profited as consumers used the lockdown period to make home improvements. For example, Kingfisher, the parent company of both B&Q and Screwfix, reported sales rising by a quarter in June 2020.

While demand in DIY was clear across the board, there appeared to be both winners and losers in the clothing retail space with brands boasting a strong online presence out-performing those who were slow to adapt. For example, BooHoo’s sales rose by 45% year-onyear in the six months to 31st August as consumers turned to online shopping.

However, Matalan’s sales dropped by 72.5% year-on-year in the 13 weeks to 30th May as it was hit by the closure of all non-essential retail stores. Similarly, TK Maxx (-42.3%) and Next (-34%) both recorded concerning year-onyear drops in sales. Meanwhile, Cath Kidston had already agreed to close all of its stores for good as part of a rescue deal at the peak of the pandemic in April.

Another of the hardest-hit sectors has been hospitality. While overall high street footfall is down sharply on last year’s figures, evening footfall has seen the harshest fall. Between the hours of 5pm-8pm, the figure was down 42.1% in September year-on-year, and falling by 44.7% after 8pm.

The closure of non-essential shops and offices in our towns and cities has had a dramatic knock-on effect to the hospitality sector. Despite the revival of the sector brought about by the government’s Eat Out to Help Out scheme, the industry is still at risk.

The Restaurant Group (TRG), which owns chains such as Frankie and Benny’s and Chiquito, slumped to a £235m loss for the 26 weeks to 28th June 2020, while the firm permanently closed 120 restaurants over the summer.

Elsewhere, pub chain Greene King is set to close dozens of its pubs with 800 jobs at risk following a slump in demand.

In the entertainment sector, Cineworld recently announced that all of its cinemas would be closed “until further notice” due to the lack of demand and lack of new box offices titles.

The release of the latest James Bond film, initially set to be launched in April 2020, has been postponed twice already, while Disney’s latest bigbudget title, Mulan, was made available on streaming platform Disney+ immediately rather than launching in cinemas.

“While some sectors are still at the mercy of the virus and are unable to operate in even socially distant environments, others are recovering, with some even performing better than before the pandemic. ”

Without the millions of workers flooding the towns and city centres across the UK, a host of sectors are set for a bumpy ride in the months ahead.

Despite Christmas fast approaching, further restrictions may limit consumer spending.

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CHANGING CONSU

ONLINE SALES

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UMER HABITS 2020

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THE FCA HAS EXTENDED A HAND JAMES ROWBURY | INVESTMENT RESEARCH COORDINATOR

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“ ...the Financial Conduct Authority (FCA) has only handed out four fines this year, despite having issued 17 this time last year, a record low... ”

With the pandemic in its full throws, business operations across all industries have been stretched and had to adapt to deal with the crisis and its wide-reaching impact. Not least, the financial services sector has dealt with navigating both a rocky year in markets, and increased customer anxiety. As many grapple with the prospect of a reduced household income and an uncertain outlook, financial advisers and investment managers have become a lifeline for their clients in providing the reassurance, advice and access to capital when it is needed most.

One of the more challenging aspects of a financial professional’s role is implementing new regulatory changes and ensuring clients are being serviced appropriately, but evidence is now suggesting both implementation and enforcement of regulations have fallen significantly since the start of the COVID-19 crisis. In fact, the Financial Conduct Authority (FCA) has only handed out four fines this year, despite having issued 17 this time last year, a record low.

At the end of April, the burden to the financial services industry had become acutely clear and, in response, the FCA issued a statement outlining a raft of delayed activities and regulatory changes, citing an increased focus on firms supporting their clients during this period. Helpful no less for advisers looking to assist their clients at this critical time, the move has also alleviated pressure on the FCA, in order to direct resources to more critical matters.

Perhaps the most significant of changes was the delay to the Senior Managers & Certification Regime (SMCR), back in July this year. Originally set to take effect in early December, the new implementation date has been kicked into March of next year to alleviate the pressure on firms significantly affected by the COVID-19 crisis.

Also atop the checklist was the incoming suitability review around retirement income advice, which the financial watchdog has now classed as ‘non-critical’, raising questions as to whether its implementation will in fact be indefinite. With a mandate to produce the best outcomes for clients, these radical moves seem sensible; a less-burdensome programme of regulations has allowed advisers to shift focus onto the issues that really matter to clients.

Firms should welcome the FCA’s lenience on new rules, but remain vigilant that delays can also mean backlogs. By no means should the foot be lifted off the pedal at this time, but instead take the concessions as a means of preparing for a post-pandemic compliance focus. Guidance and policy statements are available to read on the FCA website (www.fca.org.uk) and it is prudent to utilise this vital resource to endorse these rules; after all, they are here to create better outcomes for our clients.

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redmayne.co.uk