On 11 January 2021, the FCA issued Market Watch 66 which sets out new expectations for firms when working from home. Importantly, this edition reverses the FCA's previous position on recording telephone conversations and electronic communications during lockdown. The relaxation of the recording obligations for FCA regulated firms whose activities fall within the scope of Senior Management Arrangements, Systems and Controls regime (SYSC 10A) during previous lockdowns, has now changed.
The FCA have recognised that COVID-19 has significantly affected business operations. It's very likely that homeworking will continue long into the future, but with this comes a greater risk of misconduct. This can range from increased use of unmonitored and/or encrypted apps, such as WhatsApp, to share potentially sensitive work information. Firms may struggle to effectively monitor this form of communication, thus posing a significant compliance risk.
To combat this, firms must now ensure that if such apps are on business devices, communication is recorded and auditable if used for in-scope activities, such as:
- Arranging of deals and dealing in investments (as principal or agent);
- Managing investments;
- Managing a UCITS or AIF; or
- Operating or winding-up a collective investment scheme.
It's crucial to be aware of using social media platforms or WhatsApp to provide investment advice or arrange deals - this can include making investment recommendations to clients. The FCA has already sought orders preventing individuals from carrying out these activities in the future.
What needs to be done?
If the recording regime SYSC 10A applies to a firm, it must continue to take reasonable steps to record such telephone conversations and keep a copy of the electronic communications that directly relate to the performance of in-scope activities mentioned above, if home working during lockdown. In addition, the firm must also identify communications intended to lead up to these activities – where there is a reasonable prospect of performance or actual performance of an activity.
Firms must also ensure recording policies are effective and up to date. The FCA can request a firm demonstrate that such policies, management oversight and procedures meet the recording rules, including those relating to home working. These policies should:
- Identify which communications are subject to recording requirements;
- Contain procedures to follow for a breach or gap in protocol is found;
- Highlight where additional measures are needed (for example permitting a new medium of communication); and
- Provide sufficient scope to include the use of privately owned devices that connect to the business network (or ban it altogether)
It's also expected that firms provide training to staff if any policy is introduced or amended.
This approach seems to acknowledge that working practices have now changed, for this current lockdown and the future. It shows that FCA regulated firms are able to successfully implement agile working, but need to comply with additional call recording requirements to ensure mitigation of the heightened risk. It's expected this change in outlook may be forthcoming in other areas, such as planning, construction, data security and operational resilience.