FCA reminds firms that the fight against market abuse continues during lockdown – can you demonstrate that your policies are fit for purpose in a home working environment?
While the FCA is well aware that regulated financial services firms faced operational challenges at the start of the first lockdown and attempted to ease some minor administrative burdens on firms (such as some reporting obligations and a delay of the deadline for assessment of fitness and propriety of certified persons) it has also been clear that the obligations of firms, and the individuals who work for them, in relation to tackling market abuse and other financial crime have not diminished.
In her recent speech at the City Financial Global event Julia Hoggart, the FCA's director of market oversight, said that the FCA expects firms to have updated their policies, refreshed their training and put in place rigorous oversight reflecting the new environment - particularly regarding the risk of use of privately owned devices. The FCA now expects firms to maintain the same standard of monitoring of staff working from home as they would in an office environment.
Firms need to carry out appropriate risk assessments in relation to the new environment and ensure that their market abuse policies fit the risk assessment and that their procedures for investigations of a potential breach are robust. Firms are also encouraged to ensure that their wider compliance obligations have been suitably adapted to the new environment. In particular the FCA has made it clear that it expects firms to proactively manage the increased risk posed to information security as a result of home working.
While it is important to have robust policies in place, with which all relevant members of staff are familiar, Ms Hoggart also emphasised that it is essential that firms conduct any investigations into market abuse and other financial crimes with appropriate levels of discretion. In a recent issue of Market Watch, the FCA discussed how inappropriate handling of information requirements sent to firms by the FCA may compromise the FCA’s investigations into suspected market abuse – particularly where subjects are tipped off due to the inappropriate conduct of an internal investigation by a firm.
In addition, the Market Watch article also highlighted the increased number of disclosures by firms of material which would otherwise be subject to legal professional privilege. It is extremely important to take legal advice before disclosing any communications with your lawyers to the FCA, as legal professional privilege can be lost and the material may become usable and disclosable by the FCA in the event of enforcement action being taken. This can also have a wider impact as third parties who might be looking to take action will be able to access that material if it then becomes public: there will be no bar on them using it either.
Market abuse procedures and wider compliance monitoring are clearly matters that the FCA have in their sights and, if they have not already done so, firms should review the effectiveness of their compliance procedures and policies in a home working situation and must ensure that they can clearly demonstrate to the FCA that they have been applied robustly during the pandemic.