The UK’s Financial Conduct Authority (FCA) periodically publishes newsletters to the market, called Market Watches, to provide guidance and instructions to all FCA-regulated firms about market conduct and transaction reporting issues.
To kick off 2021, Market Watch 66 was published to provide guidance on the FCA’s expectations of communication recording during remote working as a result of COVID. The newsletter sets standards on recording and monitoring telephone and electronic communications for firms in current circumstances.
All FCA-registered firms should become familiar with this and every Market Watch, as the FCA requires firms to adopt them and amend any processes that do not meet their recommendations. Read the full document here.
At a glance, here are some notable highlights from Market Watch 66, as well as our team’s analysis of Relativity Trace’s capabilities in delivering on these regulatory expectations.
Increased Risks to Firms
Due to the COVID-19 pandemic, many firms have faced higher risks to their business, clients, and employees, be it breach of regulations or volatile markets.
Additionally, the rapid rise of communication channels due to the push to remote working has posed huge challenges. Despite the increased adoption of these new data sources, firms’ requirements to effectively monitor and target misconduct within in these channels remain the same—including recording obligations.
As a result of this storm, the risk of misconduct has increased, and any unmonitored communications channels such as WhatsApp are only adding to that minefield.
The sharing of sensitive information is at its highest exposure for many organisations whose employees are conducting business in dispersed channels and environments. Firms are therefore expected to incorporate these new channels into surveillance scope, or mitigate risks where such monitoring is not possible.
It’s important that communications channels used for business work be recorded and fully auditable. This includes mobile communication sources such as WhatsApp, which many financial institutions are not capturing today, often incorrectly assuming they are not being used by employees. This also include phone calls made via telephony systems, mobile phones, turrets, or collaboration platforms like Teams or Zoom.
These data sources are being used by employees and can be captured with the right technology. It is crucial for firms to be proactive and review their policies in regards to recording channels, in hand with their surveillance controls, ensuring that all new methods of communications are in scope for review.
More specifically, the FCA expects firms to “have a rigorous monitoring regime, commensurate to the increased risks, where in-scope activities may be conducted outside the controlled office environment. As part of this, individual Senior Managers have an important part to play in establishing and embedding the right culture and governance within firms to continuously improve the standard of conduct at all levels.”
The FCA emphasised that, without a stringent surveillance framework, a firm is at real risk of missing key data whenever a new communications channel emerges.
Market Watch 66 provided some specific guidelines around what types of conversations and communications must be recorded by regulated firms: “Recording obligations apply to conversations and communications made with, sent from, or received on, equipment provided or permitted to be used for business purposes.”
Furthermore, per the recording regime SYSC 10A, “firms must take reasonable steps to record telephone conversations and keep a copy of electronic communications of activities falling within scope of the recording rules.”
Therefore firms must ensure that they can identify calls and communications that in are scope and approved to conduct business, via both internal and external channels.
The newsletter also included some high-level reminders to firms, stating they must maintain effective and robust policies, and be able to demonstrate to the FCA what management oversight and procedures they have in place to meet recording requirements.
These policies must list all approved communications channels, with rationale of coverage, such as misconduct and market abuse, as well as the procedures to follow in the event a breach or gap is identified. Any changes made to the policies must be documented and signed off by appropriate individuals at the firm, so ensuring those responsible under SMCR are aware of any changes.
When incorporating a new channel into monitoring, firms must ensure that all regulatory recording requirements are met prior to implementation.
Where privately owned devices are concerned, the FCA advises that firms assess risks and document decisions made when evaluating whether or not the channel would be in scope for monitoring. This included cases where a platform is banned by a firm. It is essential that this is well documented and that employees are well educated about restrictions.
All arrangements must be clear and approved by senior management, before being used by employees.
Finally, the FCA notes that, where amendments have been made, the firm is expected to provide re-training to ensure all staff are aware of the new measures adopted by the firm.
Relativity’s Analysis for Trace Users
Fortunately, Relativity Trace users have easy access to the technology they need to ensure they’re fulfilling these requirements from the FCA—as efficiently as possible.
Relativity Trace has an audio surveillance module specifically for the capture, transcription, and review of audio data from a variety of communication channels. Audio communications (also known as aComms) is different from electronic communications (or eComms) in that transcription is an imperfect science, so you need a purpose-built audio alerting and review framework.
With an integration from our voice technology partner, Intelligent Voice, Trace can ingest audio data and display them alongside their transcription for easy review.
Relativity Trace also partners with leading mobile capture technologies such as TeleMessage and LeapXpert for the ingestion and review of WhatsApp, WeChat, text messaging, and other data sources. You can find a multitude of our partnerships in the Relativity App Hub.
Finally, our recent acquisition of VerQu promises even greater abilities to integrate with emerging data sources quickly. As a result, short message data can be captured and reviewed dynamically in Trace. Take a look in the video below:
If you have any questions about how Trace can better support your communication surveillance procedures and meet regulatory requirements from the FCA and other bodies, please don’t hesitate to reach out. We’re here to help.
Sonia Chowdhury is a compliance subject matter expert at Relativity, where she supports development of Trace—a communication surveillance tool that detects insider trading, collusion, and other non-compliant behavior in real-time.