Working From Home Governance – What Governance?

The goal of the FCA is to ensure honest and fair markets for individuals, businesses, and the economy as a whole. The Authority does this by protecting consumers, protecting the financial markets, and promoting competition[1]. 

Regulations and rules set out how firms must operate and govern their daily business activities so they can evidence, if required, that they are adhering to the rules.  Some of these rules relate to how individual employees must operate.   

As a result, many City firms deploy a raft of sophisticated governance and control measures around market abuse, conduct and managing interest to essentially “keep their employees honest”.  A number of these controls would not be needed if some industry colleagues hadn’t previously demonstrated their wiliness to break the law!

These systems and controls have all been designed from a Work from Office (WFO) paradigm.  The trouble is, most if not all, of the employees that the regulator is most concerned can abuse the market – those conducting Senior Management and Certified Functions – are now Working from Home (WFH).

Speaking at a City Financial Global event (12th October) Julia Hoggett, Director of Market Oversight at the Financial Conduct Authority, said security arrangements for staff privy to insider information should be the same when working remotely as when in the office.

Ms Hoggett said:

 

“Our expectation is 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.”

Hope is not a Strategy


But just how is a firm to ensure, for example, that Tarquin who now trades from his man cave in his garden in Richmond Upon Thames rather from the secure and tightly controlled City Offices of Big Bank plc isn’t breaking every rule in the book?  Just how is Big Bank Plc going to evidence that Tarquin isn’t trading on his own account, on screens and systems situated on the very same desk as his employer provided systems?  Or even getting on his “burner phone” and blatantly selling confidential insider information to his pals.

Theoretically, Tarquin and many others can WFH, but if this is at the expense of market integrity, perhaps the FCA needs to be more prescriptive and rule that unless firms can replicate the same levels of governance and control in a WFH scenario as a WFO scenario then that work cannot legally be conducted from home. 

The FCA acknowledges that the change in circumstances created by COVID-19 has created new conduct risk issues, but as we go into lockdown again, hoping that all individuals working from home will comply with regulatory expectations is not a strategy that has much chance of success.

And hot of the press, this excellent article from Bovil CEO Ben Blackett Ord, calling out FCA on the apparent limp effectiveness of SM&CR.  In 4.5 years the FCA has only managed 34 investigations and one successful prosecution.  Viewing those statistics, one could be forgiven for believing that in reality Tarquin has little if no chance of getting caught and the WFH is, for any dishonest individual, like a modern-day gold rush. 

Governance?  What governance? 

* Please note Tarquin is a fictional character for the purpose of this blog post.

[1] https://www.investopedia.com/terms/f/financial-conduct-authority-uk-fca.asp#:~:text=The%20goal%20of%20the%20organization,U.K.’s%20Treasury%20and%20Parliament.

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