It has been a year since the Covid-19 pandemic has struck the world. The impact that the pandemic had on businesses and a personal level has, for some, been devastating. Nevertheless, people have now learned to cope up with the situation and move forward. Even though many companies had business continuity plans that included measures to be adopted during a pandemic, none of them foresaw a pandemic extending over a year. It must be noted that companies that already had the option of remote working, and those who were technically equipped to ensure a compliant work culture, suffered less during the last year.
The pandemic seriously shook financial firms across the globe. Since the business was conducted only on dedicated trade floors, it was unimaginable to allow employees to work from home during the initial days of the pandemic. But as the global condition worsened, financial firms had no choice but to allow their employees to work from home.
The doubts about the successful execution of regulatory standards while working in a remote environment was the reason why firms were hesitant to allow their employees to work from home. This is a legitimate concern considering the previous history of penalties imposed by financial regulators on firms that had failed to comply with the applicable regulations.
Misconduct and illegal behavior among employees during remote working
Ensuring communication compliance in a financial firm was always a laborious task. But the remote working scenario that evolved as a result of the Covid-19 pandemic has further tested the ability of compliance teams. While all employees were physically present in the office during the pre-pandemic era, compliance teams had the luxury of getting in-house alerts from the employees regarding possible market abuse. Since everyone was working close to each other, employees could identify the occurrence of illegal trade or other sorts of market abuse from their colleague’s conversations. Such events could be directly reported to the compliance team, and preventive measures could be sought when people were working from the office.
The use of mobile messaging applications such as WhatsApp, WeChat, Signal, and Telegram for communicating with the client was discouraged by many financial firms before the pandemic. Firms took such a stand as regulators had previously waived a red flag on these mobile IM applications due to possible compliance risks. But during the days of the pandemic, clients, as well as traders, preferred the use of mobile messaging applications that led to a spike in the usage of applications like WhatsApp, WeChat, Signal, and Telegram. Since restrictions on mobile IM applications were not turning out so well, the regulators finally allowed the use of applications like WhatsApp and WeChat for business communication.
A recent report reveals the behavioral pattern of employees while working from home. The study that was performed on employees in financial firms from the United States (US), U.K, and Canada reveals the misconduct and illegal behavior that can result in regulatory compliance risks.
Key findings of the study are as follows:
- 15% of the respondents were aware of their colleagues breaking security policies while working from home
- While 4% of U.K and Canadian respondents knew that their colleagues were stealing proprietary information, some 16% of U.S participants knew the same information
- While 5% of U.K and Canadian participants were aware that their colleagues used to buy illegal drugs online using their work channel, while working from home during the Covid-19 pandemic, again 16% of U.S respondents knew the same information
- 9% of the respondents said that they knew their colleagues had kept lists of employees based on their physical appearance
- 4% of employees in the survey revealed that they had experienced sexual harassment while working from home
- 7% of respondents have confirmed that they had witnessed cases of racism also
Expectations from regulators and the practices adopted
The Director of Market Oversight at the UK Financial Conduct Authority (FCA) had stated the risks of market abuse and the expectations by FCA during remote working in a speech last year. The FCA clearly understood the difficulties of financial firms to maintain their recording and surveillance procedures during the early days of the pandemic. But the FCA clearly states that going forward, they expect both the office and working from home arrangements to be equally compliant.
The FCA also identifies that while the fundamentals of market abuse remain constant, the mode of risks being manifested has changed. Due to this reason, the surveillance methods must also change to suit the current changes in the market. Firms must update their policies and refresh their training so that employees are aware of the compliance requirements. This is particularly important in the case of the use of privately owned devices. Firms must ensure that proper policies are in place to prevent the use of privately owned devices for business purposes where recording is not possible. Also, if any new mode of communication is being adopted, the management must ensure the surveillance and recording capability through this newly adopted communication channel.
Above all, employees must practice an ethical legal culture in their line of work. Since employees are not working from the office anymore, the compliance team cannot oversee them personally. The physical presence of employees in the office made them aware that they were working in a strict, compliant environment. But while working from the convenience of home, employees could develop a lax attitude towards compliance requirements. Hence, employees must develop an attitude where they should maintain professional ethics irrespective of working from the office or home. The compliance managers and leaders of the firm must reiterate and reinforce their expectations of compliant work culture so that employees will not have any doubts regarding the standards expected from them.
Alan Au, the Hong Kong Monetary Authority (HKMA) executive director of banking conduct, has a similar opinion. Mr. Au also has the opinion that a good culture is direly warranted, especially at present. He further added that the lack of oversight over the bank staff and increased pressure on them to perform during the pandemic could increase the risk of poor customer outcomes. Bribery and inducements to trade are other factors that could impact financial firms in Hong Kong. The regulator is planning to introduce incentive systems for promoting a good work culture and minimize the occurrences of misconduct.
Like the FCA, the HKMA also expects the senior management to ensure that the employees understand the standards expected from them. Management must be careful while ascertaining such expectations, as the goal is not to set fear amongst employees but to educate them on the importance of ethical work culture. The HKMA is also satisfied with the results of the inclusion of technological solutions for regulatory compliance and internal controls in financial firms and expects the firms to continue it. The Hong Kong Securities and Futures Commission (SFC) continues its actions to prevent conduct risk inside regulated firms and is watchful on how technological solutions can help firms meet regulatory compliance.
In the past, the Hong Kong financial regulators were unable to pursue a market abuse case outside the borders of Hong Kong or to chase firms involved in a market abuse but who stored their data abroad. Such a scenario where defaulters could walk free due to the unavailability of regulatory records will change. The SFC will have greater authority and access to resources to conduct investigations abroad.
While ensuring good conduct and setting up policies to foster regulatory compliance, proper measures for surveillance and recording must also be in place. As mentioned earlier, the inclusion of technological solutions will help in many ways. Mobile messaging applications like WhatsApp, WeChat, Signal, and Telegram have become the favorite choices of employees and clients alike. Hence it is wise to introduce a tool that can record and archive messages and calls, to meet regulatory compliance. Enterprise instant messaging can be made more secure and complaint if WhatsApp recording, WeChat recording, Signal recording, and Telegram recording can be performed in regulated firms that use these applications.
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