Removal of 10% Investment Value Drop Rule Notification

Published / Last Updated on 12/12/2022

As part of 2018 EU MiFID II rules, investment and pension company fund managers are required to notify clients when their funds have fallen by 10% of more.

The 10% fall notification is required to be issued:

  • If funds fall by 10% or more over a 3-month period.  Some fund managers may do this more often.
  • It is a requirement that the investor is notified by close of business on the same day when funds dip to 10%.

After Brexit, the UK adopted and made all EU finance rules and regulations, domestic law in the UK with a view to amending and moving away from some EU laws.

This is now the case with the government announcing last Friday that 30 measures would be taken to make the UK financial services market even more competitive and attract both investors, companies, and skilled workers.

The 10% drop rule is unpopular given fears that it would frighten investors into switching away from markets when in fact they would likely be better served as most investments are designed to be medium and longer term i.e., we should be encouraging people to remain in markets despite the loss to wait for recovery rather than exit the market and make those losses real.

Currently, the 10% drop rule was and still is suspended after market falls of 30%+ during covid-19 lockdown periods but is due to come back ‘on stream’ on 1st January 2023.

A new statutory instrument has been confirmed that will permanently remove the 10% drop rule from 7th June 2023.

Comment

This is a difficult one, whilst we do not wish to frighten investors, we believe there should be a structured mechanism for investors to be reminded when funds have fallen in value.  Equally, any investor should at least be keeping an eye of their investments or paying a financial adviser to review them at least once a year.  Sadly, many do not and let their investments ‘ride’.  Perhaps a simple solution would be to have periodic advertisements or public service announcements every quarter to remind people to review their investments in times of volatility or economic instability. 

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