It is much harder for regulated firms to ensure that everyone complies with the firm’s internal systems and controls when the entire work force is working from home. So, the risk that an employee will go rogue during lockdown is inevitably much higher than it was. Breaches of confidentiality, insider trading, trades on unrecorded mobile lines and avoidance of normal compliance procedures such as KYC are just some of the potential problems.
The FCA has been very clear that, despite the global viral pandemic its rules still apply, and its expectations remain the same.
This leaves regulated firms with significant challenges.
- Detecting a breach
- Conducting an investigation
- Investigatory meetings
- A breach of FCA Conduct Rules
- Think carefully before dismissal
- The firm’s obligations – align your process
1. Detecting a breach
The first problem might be detecting a breach in the first place! For example, it may be difficult for firms to assess whether insider trading has taken place, as they are likely to be unaware of the individuals their employees are living with or talking to during the working day.
2. Conducting an investigation
Once something irregular has been detected, the next challenge is investigating it properly.
If the potential breach is serious enough, the firm might need to suspend the relevant individual, and block their access to the firm’s systems, to stop them deleting, changing or stealing information, whilst they are under investigation. .
Conducting an investigation during the lockdown presents its own challenges: apart from anything else it diverts resources needed to keep business going as usual to a time consuming and non-remunerative task. Therefore, it may be tempting for a firm to leave the employee on suspension until a more opportune time to carry out an investigation. The difficulty with that is the evidence will grow stale, and the employee will have grounds to complain that the firm has breached the implied (and possibly) express duties to them to carry out an investigation as expeditiously as possible.
3. Investigatory meetings
Other challenges include the conduct of investigatory meetings over video conferencing facilities. Ground rules will need to be set on whether the meetings are recorded or not. Employees are likely to be recording them in any event so many employers might as well agree; it makes life easier when it comes to the production of the notes!
There’s no right to be accompanied at an investigatory meeting, but if matters proceed to a disciplinary meeting there is a right to be accompanied, and if the matter potentially threatens the employee’s regulated status and hence their ability to work in the financial sector in the future, there may be a right to legal representation.
This opens up the possibility of a disciplinary hearing on a video platform with the hearing manager and HR representative each in their square on the screen and the employee and their lawyer each in their own square on screen.
4. A breach of FCA Conduct Rules
When the firm investigates whether an employee has breached its internal systems and controls requirements, it will also need to consider whether the employee has also breached one of more of the FCA’s Conduct Rules. If Conduct Rule breaches are found, the firm will need to consider whether it needs to revoke a certificate (if the employee is a certified function employee) and/or make a report to the regulators (for example, if the employee is a senior management function holder, and the breaches are serious). The firm will also need to consider the sanction to be applied.
5. Think carefully before dismissal
A decision to dismiss in the current climate will have to be very carefully weighed. Before imposing such a sanction careful consideration must be given to any extenuating circumstances. Many employees are finding the working environment intense and stressful and may be dealing with difficulties out of work, such as looking after, and schooling, children, caring for vulnerable relations, and dealing with illness and tragedy within the family. The employee facing disciplinary action may also be unwell.
A dismissal at this stage will cast the employee into a changed world where new employment may be impossible to find. Some of the banks have placed a moratorium on making individuals redundant, during the pandemic; this is different from a dismissal for misconduct but is an acknowledgement by some employers of the extreme difficulty some employees will have in finding new employment at present.
6. The firm’s obligations – align your process
The management of the firm (including Legal and HR) who are dealing with the investigation and disciplinary proceedings will need to be mindful of their own obligations to act with due skill, care and diligence throughout the process. If the investigation is not launched and pursued in an appropriate way; if the investigation does not reach reasonable conclusions; and/or if the regulated firm does not take appropriate action, when the investigation has been concluded, the firm and/or its key individuals might find themselves at risk, from a legal and regulatory perspective.
HR and Legal should therefore ensure that, despite the individual and those who would normally be a part of any such process working from home, a thorough investigation into the breach is performed to the same standard the firm would normally require, which may involve amendments to the process and include allowing more time for the process to be concluded.
If you have any questions about these issues in relation to your own organisation, please contact a member of the team or speak with your usual Fox Williams contact.
Articles and commentary by our legal experts on the impact of Covid-19 are all available here.