On 11 January 2021, the UK Financial Conduct Authority (FCA) published the 66th edition of its Market Watch newsletter. The newsletter sets out the FCA’s expectations for firms on recording telephone conversations and electronic communications when alternative working arrangements are in place, including increased homeworking in light of the COVID-19 pandemic.
The newsletter follows on from an update on 8 January 2021 to the market trading and reporting statement on the FCA’s Coronavirus (Covid-19): Information for firms webpage. In that update, the FCA notes that, given the extensive duration of alternative working arrangements during the pandemic, the FCA now expects firms to record all relevant communications (including voice calls) when working outside the office.
Risks from reduced monitoring
The FCA acknowledges that the COVID-19 pandemic has had a significant and, in some cases, long-lasting impact on how businesses are run, with changes to technology and increased homeworking. However, it expects firms to continue to comply with the recording obligations set out in its Senior Management Arrangements, Systems and Controls Sourcebook (SYSC 10A). These obligations remain unchanged.
The FCA notes that risks from misconduct may be heightened or increased by homeworking, including through increased use of unmonitored and/or encrypted communication applications such as WhatsApp for sharing potentially sensitive information connected with work. The FCA has already taken action against individuals and firms for misconduct involving the use of WhatsApp and other social media platforms to arrange deals and provide investment advice.
The FCA reiterates the importance of proactively reviewing recording policies and procedures each time the context and environment that firms operate in changes.
The lack of physical supervision in an office environment during the pandemic has also meant that there is greater risk (and temptation) of staff using unrecorded communication apps such as WhatsApp and Signal during the working day. There is a continuing tension between the need for firms to keep records of all regulated business communications on the one hand, and the desire of people, including firms’ clients, to use private, unrecorded communication methods for reasons of convenience and confidentiality. However, the FCA has made it very clear that the rules are not going to be loosened in that regard.
The FCA also refers to the role of Senior Managers of FCA regulated firms (i.e. under the Senior Managers and Certification Regime, making the point that “individual Senior Managers have an important part to play in establishing and embedding the right culture and governance within firms.” In the event of a breach, the FCA might seek to investigate whether the relevant senior managers of the firm had created or condoned a culture of non-compliance with these rules.
Communications that must be recorded
SYSC 10A requires firms to take reasonable steps to record telephone conversations that involve dealing and arranging activities, and keep a copy of electronic communications that involve activities falling within the scope of the recording rules.
The FCA reminds firms that, depending on the circumstances, internal conversations concerning in-scope activities must also be recorded.
Firms should also remember that, although the focus of the newsletter is on ensuring that the relevant calls are recorded, firms have an obligation to actually monitor the recorded calls. Article 76(6) of Regulation (EU) 2017/565 (otherwise known as the “MiFID Org Regulation”) provides that “investment firms shall periodically monitor the records of transactions and orders subject to these requirements, including relevant conversations.”
What this means for firms
Firms are reminded that they must have effective, up-to-date recording policies and be able to demonstrate to the FCA, upon request, that their policies, procedures, and management oversight meet the recording rules. This includes policies and procedures adopted for home working arrangements.
The FCA notes that firms could consider banning the use of privately owned devices for in-scope activities, if recording cannot be conducted by the firm. In all cases, arrangements should be clear that new communication mediums must be approved by the firm before being used by employees to conduct business activities.
The FCA expects firms to provide enhanced or refreshed training to staff covering the use of new technologies and conduct risks arising where new or amended policies are introduced or new technologies are used.
Firms that have not reviewed their call recording policies and procedures since MiFID II was implemented in January 2018 should carry out a review soon to check that the policies and procedures are still fit for purpose in a remote working environment, and whether new communications platforms need to be referred to.
It is also clear that it will not be sufficient simply to update the relevant policies and procedures, it will be necessary to ensure that staff are aware of the new or amended policies and are appropriately trained in them.
The FCA concludes by stating that there is no specific restriction on the technologies or applications that firms can use for communications. However, in all cases, firms must understand the recording obligations and have effective policies, controls and oversight to ensure that these are met.
Sidley Austin LLPはクライアントおよびその他関係者へのサービスの一環として本情報を教育上の目的に限定して提供します。本情報をリーガルアドバイスとして解釈または依拠したり、弁護士・顧客間の関係を結ぶために使用することはできません。
弁護士広告 - ニューヨーク州弁護士会規則の遵守のための当法律事務所の本店所在地は、Sidley Austin LLP ニューヨーク：787 Seventh Avenue, New York, NY 10019 (+212 839 5300)、シカゴ：One South Dearborn, Chicago, IL 60603、(+312 853 7000)、ワシントン：1501 K Street, N.W., Washington, D.C. 20005 (+202 736 8000)です。