Satisfying the Regulator During the COVID-19 Pandemic

Even as businesses grapple with the changes brought by COVID-19, the Financial Conduct Authority has issued a reminder that regulations must still be adhered to.

The COVID-19 pandemic has rendered daily life unrecognisable, and across the globe people are trying to determine how to navigate the strange new world we are living in. At the same time, businesses are having to alter their practices to keep functioning despite the changes that the rapid spread of COVID-19 has caused. The pressure is being felt across all sectors and financial services are no exception.

However, despite the uncertainty of the current environment, regulators still require businesses to comply with certain standards – as made clear in the recent information published by the FCA, which lays out the expectations of the regulator over the coming weeks and months.

With this in mind, there are steps financial services businesses can take to stay on the right side of the FCA during these unprecedented times. Imogen Makin, Director at DWF, outlines the most important ones to consider.

It’s All in the Timing

There will undoubtedly be some teething problems for businesses as their workforces get used to the mass remote working required to comply with the current isolation rules. The FCA, and other regulators, know that this situation has never occurred before, and are therefore understanding of any problems or issues encountered in transitioning to this new way of working. However, the key here is just that, that these problems should be identified and reasonable steps taken to rectify them sooner rather than later.

Financial businesses must make it a priority to deal with any problems efficiently and effectively to minimise the risk of criticism from the FCA. Enforcement outcomes over the last few years suggest that firms’ response times, both in terms of the identification and rectification of any problems, are important.

Keep an Eye on Your Employees

Another key issue linked to business being done from home is potential market abuse. Firms’ systems and controls for the prevention and detection of market abuse has been an area of focus for the FCA for some time, and the risks around mass remote working have brought this back to the forefront of the FCA’s agenda. The FCA has stated that firms could consider whether they need to introduce enhanced monitoring, for example, in order to mitigate market abuse risks.

It is clear from the FCA Primary Market Bulletin published on 17 March 2020 that the regulator expects  firms to continue to comply with their obligations under the Market Abuse Regulation and relevant FCA rules, notwithstanding the operational difficulties they may be facing. Firms therefore need to ensure that their analysis of market abuse risks in this new working environment is clearly documented, alongside any actions taken to mitigate them.

The FCA has stated that firms could consider whether they need to introduce enhanced monitoring […] in order to mitigate market abuse risks.

Reduce Work-Related Travel

Further to the new rules brought in by the government to only travel when it is essential, the FCA published a statement outlining the responsibilities of Senior Managers to determine which employees must continue to travel to work.

Senior Managers responsible for identifying which of their employees need to travel to the office or business continuity site should document clearly the rationale for requiring any work-related travel and ensure that this is kept to a minimum in order to both appease the FCA, and keep their workforce as safe as possible.

Treat Your Customers Fairly

The disruption caused by the COVID-19 pandemic is unchartered territory; it has affected education, work, and almost all aspects of everyday life.

With this in mind, it is important for financial services businesses to consider that their customers are likely experiencing many stresses and uncertainties themselves and so regulators, including the FCA, have made it clear that they expect customers to be given flexibility and leniency, for example, in relation to mortgage payments.

Firms will need to ensure that they strike the right balance between protecting consumers’ interests, whilst also maintaining their own liquidity and financial resilience, all of which are important in the eyes of the FCA.

Communication Is Key

As in all successful relationships, communication is key – and the relationship between firms and regulators is no different. The FCA accepts that businesses are doing all they can to keep functioning during these extraordinary times, but they are nevertheless still required to comply with their Principle 11 obligations.

Firms should make sure they maintain an open dialogue with the FCA and inform them of problems sooner rather than later; for example if a firm is unable to meet FCA requirements in relation to recorded lines, the FCA has stated that it expects to be notified. The FCA’s publications in relation to COVID-19 suggest that the regulator is prepared to be forgiving as long as firms have kept them informed and have taken reasonable steps to deal with any challenges that arise.

No Need to Panic

Firms regulated by the FCA do not need to fear – everyone is getting to grips with the new working environment simultaneously and some initial challenges are inevitable. The FCA has demonstrated that it is willing to be reasonable, but it will not allow COVID-19 to be used as an excuse for bad behaviour. The points outlined above provide a few tips to FS businesses to maintain good relations with the FCA for when the world returns to normal (whenever that may be).

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