Recordkeeping regulatory obligations unchanged during pandemic

Oct 22nd '20

Our professional and personal lives have been changed dramatically because of the coronavirus pandemic. With the majority of office workers now conducting business from home, these two aspects of our lives are often intermingled. Conversations can go back and forth between professional and personal topics throughout each day.


When you work in the financial services industry this intermingling can raise some issues. In a recent speech at a City Financial Global event, Director of Market Oversight for the FCA Julia Hoggett acknowledged this new way of working and the risks it may present:


Working from home — which many insiders will still be doing even as some trading floor staff have returned to the office — also changes the controls landscape. In initially instituting social distancing in the office some firms were challenged in terms of supporting the appropriate physical distance to maintain information barriers. At home, this is equally important, where inside information may need to be kept from partners or flatmates. It is absolutely the case that this risk has always existed, but when the separation between work and home life is perhaps harder for some people to navigate, it may be all the more important and acute.”


Regulatory obligations remain across channels and devices

The FCA highlighted that regulatory obligations have not changed regarding new communication channels (e.g., text, social, instant messaging and collaboration) and personal devices (mobile phones, tablets, etc.):


We expect 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. These policies should be demonstrable to us and to your audit teams. It should go without saying that policies should prevent the use of privately owned devices for relevant activities where recording is not possible. New communication mechanisms, before they are used, should have controls in place where required and their use is approved by firm management. The regulatory obligations have not changed, the how may be changing, but the what remains the same.


There has been an explosion in the use of communication tools such as Microsoft Teams and Zoom during 2020 to accommodate the change in circumstance. This has introduced real challenges for compliance teams when it comes to supervision and surveillance.


When the UK initially entered lockdown in March 2020, the FCA released a statement acknowledging the unprecedented times we find ourselves in. They reminded firms of their obligations to record and monitor all forms of communication as per MiFID II requirements.


More recently the FCA’s stance on working from home is that office and working from home arrangements should be equivalent. Hoggett said, “While scenarios emerged early in the pandemic where the usual levels of recording and surveillance were not possible, our experience suggests firms have now overcome these challenges. We expect that going forward, office and working from home arrangements should be equivalent — this is not a market for information that we wish to see be arbitraged.”


Financial services firms must focus on oversight and monitoring for compliance

Regulatory obligations haven’t changed. The oversight and scope of the obligations have. Financial services firms have responded rapidly throughout this crisis. Microsoft CEO, Satya Nadella said it best, “We’ve seen two years’ worth of digital transformation in two months.” This has made the compliant capture and storage of new content channels a primary focus for regulated organizations in 2020. The focus continues to shift toward oversight, with requirements for enhanced monitoring as well as a retrospective review of this data.


Conduct crises can follow financial crises…continued vigilance in combatting market abuse must continue,” Hoggett concluded. “I hope, as with many things in this pandemic, it is possible for everyone in the market to see quite how vital their work is, but also how essential it is that we all do our work well, with integrity and with the bigger picture in mind.”


Source: Smarsh

Authors: Marianna Shafir Esq & Shaun Hurst


Marianna Shafir, Regulatory Advisor at Smarsh, is responsible for regulatory affairs worldwide. With her expertise in financial services industry, compliance and eDiscovery, Marianna counsels Smarsh clients on meeting regulatory obligations, leveraging technology and guidance on best practices related to electronic communications supervision. Prior to joining Smarsh, Marianna worked for BNY Mellon and Invesco where she was an instrumental member on compliance teams.Marianna has also served as an adjunct professor at New York Career Institute where she taught Law Office Management and Real Estate Law. She earned her Juris Doctorate from Nova Southeastern University. She is a frequent speaker at industry conferences and a contributor to various online publications.


Shaun Hurst is the Technical Director for International Markets at Smarsh. He has over 18 years of experience solving complex IT challenges for Financial Services Institutions, and is a subject matter expert in topics like E-Discovery, Regulatory Requirements, Data Privacy and Cloud Computing.


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