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Freshfields Risk & Compliance

| 1 minute read

Impact of COVID-19 – checklist for financial services firms

As COVID-19 (the coronavirus) becomes more widespread, we have highlighted a selection of impacts on financial services firms with a view to assisting firms to avoid the negative effects as far as practicable. 

While some of these items are financial services specific, others are more generic but may have particular nuances for regulated entities – for example, remote working is made more difficult if there is a need for recorded phone lines.

Firms might wish to consider the following:

  • Market volatility – collateralised positions on the wrong side of recent market movements will result in increased margin calls with the potential for defaults and close-outs.
  • Liquidity impacts on investments and outflows – with the volatility in markets and increasing pressure on corporate credit, there will be impacts on the value of assets held by funds and in portfolios and asset managers’ ability to trade in and out of investments may be constrained, potentially leading to liquidity issues. There may be net outflows, in particular in emerging markets strategies. Exchange-traded funds’ values are also likely to be impacted.
  • Insurance claims – insurers’ exposures under certain types of policy (travel, business interruption, health) may increase together with disputes relating to exclusions.
  • IT resilience – changing locations and patterns of working may adversely affect capacity of IT systems.
  • SME and consumer default – smaller firms and consumers who suffer a significant loss of income may default on loans and other financial obligations, with a potential knock on effect on smaller lenders.
  • Contract enforceability where performance of contracts becomes difficult or impossible, firms will need to consider their ability (or that of their counterparties) to rely on force majeure clauses.
  • Outsourcing critical functions – contingency plans should be in place in case providers of outsourced functions are no longer able to provide the service or the level of service expected and required by regulators.
  • Remote working – firms should consider the extent to which personnel can be permitted to work remotely. Factors such as the need for recorded lines and the recording of transactions on the firm’s systems may be relevant.
  • Staff absences – the impact on availability of personnel may affect operational effectiveness including at third party suppliers. Firms will need to have cover arrangements in place for senior management absences if this would pose a risk that an area of responsibility of an absent staff member was not being overseen.

In addition, regulatory processes such as change in control approvals and authorisations of new entities may well experience delays. For example, it may take longer for a controller application to be deemed complete, there may be delays in regulators providing comments on draft applications and reviewing responses to questions and there is likely to be a reduction in the number of in-person meetings and availability of staff to discuss key matters.


covid-19, financial services, coronavirus, prudential requirements, capital and liquidity