The Financial Conduct Authority’s most recent newsletter: Market Watch 66 sets out its expectations on firms for recording telephone conversations and electronic communications when alternative working arrangements are in place, including increased homeworking. This ends the easing of restrictions the FCA provided to firms in 2020 when firms were relocating to an alternative sites or increasing home working in order to cope with the covid-19 pandemic.
The FCA are concerned that compliance teams and managers are less able to monitor those who are operating remotely, which in turn increases the risk of the use of unmonitored or unencrypted apps, such as WhatsApp, for sharing potentially sensitive and confidential information. The FCA identifies that the use of such apps can present challenges and significant compliance risks, as firms will be unable to effectively monitor communications using these channels, meaning such data is not recorded and auditable.
The FCA reiterated the need for firms to comply with the stringent regulations in place by stating that “we have acted against individuals and firms for misconduct which involved the use of WhatsApp and other social media platforms to arrange deals and provide investment advice”. Whilst the FCA did not provide detail on what transaction this related to, an example of such action include March 2017, whereby the FCA fined an individual for failure to act with due skill, care and diligence for sharing confidential information over WhatsApp. The FCA advocates that such actions are viewed very seriously and if an individual stray from these rules, strict penalties will be incurred.
The FCA highlights the importance of recording such data, as without such precaution being taken, there “is a real risk of loss of monitoring and surveillance capability, and the absence of protection through loss of evidence to resolve disputes between a firm and its clients over transaction terms”. In addition, it is also “vital to help with supervisory work, help deter and detect market abuse and to facilitate enforcement”.
In this edition of Market Watch, the FCA reminds firms that, as the technological and working environment changes, the onus is on firms to regularly review their recording policies and procedures and this includes having robust and effective policies and procedures for homeworking arrangements. The FCA advise that such policies may need to cover the use of privately owned devices and the scope for effective monitoring and recording communications on them. The FCA expect firms to have a rigorous monitoring regime, commensurate to the increased risk, where in-scope activities may be conducted outside the controlled office environment. If such review results in the amendment of policies or the incorporation of new policies/guidance, there is an expectation from the FCA that firms will carry this out with the appropriate level of training.
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