The FCA expectations for remote or hybrid working firms
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Over the course of the pandemic, many firms adapted to remote working and are now setting out hybrid working arrangements which they intend to adopt on a permanent basis. In light of this, the FCA has published a new webpage setting out its remote or hybrid working expectations for firms to ensure they can continue to meet their regulatory responsibilities.
The FCA said “It’s important any form of remote or hybrid working adopted should not risk or compromise the firm’s ability to follow all rules, regulatory standards and obligations, or lead to a failure to meet them.”
The basic requirement is that a firm should be able to show that the lack of a centralised location and/or remote working does not in any way prejudice a firm's ability to meet its regulatory requirements. These include affecting the firm's ability to continue to meet the threshold conditions for its regulated activities, preventing the FCA from receiving information about the firm, affecting the ability of the firm to oversee its function, causing a detriment to its customers and increasing the risk of financial crime.
For any firm which is making any material change to its operational model, the first thing that the firm should do is assess whether the change may impact the firm's ability to meet its regulatory requirements and/or present any new risks to the firm, its staff or its clients. The firm should record the results of that assessment, any changes required as a result of the assessment and how those changes are implemented. As always, the first line of defence will be to show that the firm has pro-actively considered this issue and what actions it has taken as a result.
Ideally the assessment should take place before any changes are implemented by the firm to its operational model. Of course, that may not have been possible given how quickly lockdown was implemented but "better late than never" definitely applies here – if a firm hasn't done it already, it should now be looking at these issues carefully using the FCA's webpage as a guide.
Firms should also bear in mind that any material change to how the firm intends to operate may need to be notified to the FCA in accordance with Principle 11 of the FCA's Principles of Business – SUP 15 gives guidance on when such notification may be necessary and includes disclosing to the FCA "anything of which the FCA would reasonably expect notice". A good rule of thumb is "if in doubt, notify under Principle 11". Note that this is not a matter of seeking approval from the FCA, it is a duty to notify the FCA, who will then determine if it needs to engage with the firm on the matter notified.
A well drafted notification, including details of how the firm intends to address any issues or risks, can often demonstrate that a firm understands its obligations, and give the FCA comfort that the firm is on the right track and nothing more needs to be done.
The regulatory considerations aren't the end of the story either. There are other factors that firms will need to consider when looking to introduce hybrid working on a permanent basis. If employees' contractual terms will need to be changed, consultation about any proposed changes will be required, which may trigger formal collective consultation if 20 or more employees are affected. Firms will also need to consider whether current contracts of employment are fit for purpose in a hybrid working environment or whether additional protections need to be built in to protect confidential information, data and intellectual property rights.
Practical measures will also need to be put in place to protect the business and its employees and to ensure that a firm is complying with its legal obligations in relation to matters such as health and safety, working time, insurance, confidential information and data protection. Work will also need to be done by firms in managing and supporting its workforce through such change, as well as managing the potential impact on career progression, performance management and client service delivery. All of these issues will need to be considered as part of a well-thought through plan and included in a firm's Hybrid Working Policy which will, in turn, be evidence of a firm taking the right steps to manage risk in compliance with its regulatory requirements.
Many firms may have already used some form of hybrid working pre-pandemic and be comfortable that they are meeting all of their regulatory requirements. It is clear however that this could now be an area of increased regulatory scrutiny, so some focus is required on being able to clearly demonstrate that is the case.
