FCA expectations on remote working oversight and monitoring

In its January edition of the monthly Market Watch newsletter, the FCA focused on reiterating its expectations for firms that are required, at all times, to meet their obligations on recording telephone and electronic communications. The issue is particularly sensitive in the current circumstances, where many employees are still working remotely and therefore outside a comparatively controlled office environment.

RISK FROM REDUCED MONITORING 

The FCA noted that as a result of the shift to home working dictated by the pandemic, there is an increased likelihood of employees using unmonitored and/or encrypted applications such as WhatsApp and Telegram, in order to share confidential and sensitive information about a firm, their business, and those of their clients. This could easily apply to employees performing a range of activities that are subject to the FCA rules on recording communications such as arranging deals, providing investment advice, and managing investments (the “Regulated Activities”). The biggest risks posed being increased likelihood of disputes arising over client transactions and their terms, market abuse and anti-competitive behaviour.

These risks arise primarily because firms are less able to effectively monitor communications via such apps, and this is clearly an issue from an oversight and compliance perspective. The FCA have already enforced this position previously, notably in 2017 and separately in 2019. In the 2017 enforcement action, a former investment banker was found to have failed to act with due skill, care and diligence when sharing confidential information over WhatsApp. Following that in 2019, a former banker was charged by the FCA over deleting WhatsApp messages when under investigated for suspected insider dealing offences.[1] In both cases, one of the biggest issues faced by the firms involved where that they had not put in place appropriate measures to ensure that when such apps are used, they are recorded and auditable.

The FCA also reminded firms that, with the Senior Managers and Certification Regime now in full swing, not only are firms accountable for their part in ensuring their policies and procedures have been adapted for remote working, and that individual senior managers have an important role in establishing the right culture and governance to encourage employees to maintain the appropriate standard of conduct at all times, irrespective of their physical working environment.

COMMUNICATIONS THAT MUST BE RECORDED

The recording obligations, set out in the FCA’s SYSC handbook rules, apply to conversations and communications made with, sent from, or received on equipment provided or permitted to be used for business purposes. Firms must ensure that their policies on recording identify calls and communications that relate to the performance of the Regulated Activities by recording telephone conversations and keeping copies of electronic communications. The FCA also noted that the scope of recording should also include those communications (even where internal) which lead up to the formal provision of the Regulated Activities.

PRACTICAL STEPS FOR FIRMS 

Firms are reminded to take the following steps to ensure compliance with the rules around recording of communications:

  • up to date recording policies, specifically adapted for home working arrangements, that identify which telephone conversations and electronic communications are subject to recording requirements;
  • assess controls and approvals for the use of privately owned devices which may need to access work related systems and rules around the fact that such devices may only be used if communications can be effectively recorded; and
  • refresh staff training covering the use of new technologies and conduct risks arising.

NEXT STEPS

The FCA acknowledges that the long term impacts of COVID were not anticipated almost a year ago. However, at present firms must ensure:

  • that the recording obligations enforced within the office, are now appropriately replicated to the remote working environment; and
  • that there are effective polices, control and oversight in place to ensure compliance.

To read the FCA’s January Market Watch publication please click here.

For more information, and any guidance or advice on recording communications and working from home workforce arrangements, Cleveland & Co External in-house counselTM, your specialist outsourced legal team, are here to help.

[1] With respect to the 2017 action, please find more information here. With respect to the 2019 action, please find more information here.

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