The FCA - coming to a home near you

The FCA has this week issued new guidance for firms regarding hybrid working, the contents of which signal that the transition to permanent remote and hybrid working arrangements may not be straightforward for regulated firms. 

Evaluation of hybrid working arrangements

The FCA will evaluate firms on a case-by-case basis to assess the suitability of their remote/hybrid working arrangements. Hybrid working arrangements must not (among other factors) (i) affect the ability of a firm to oversee its functions; (ii) cause detriment to consumers; (iii) damage the integrity of the market; or (iv) increase the risk of financial crime.

Firms must be able to prove that there is a plan in place before any temporary arrangements are made permanent. This is to include appropriate governance and oversight by senior managers, committees and non-execs, policies and procedures to reduce the potential for financial crime, measures to ensure that control functions can be carried out unaffected and that all rules, regulatory standards and obligations (including, for example, call recording and trade surveillance) can still be met. Firms must also consider the effect on their staff, including wellbeing, training, and diversity and inclusion matters (on which Sheldon Mills, Executive Director of Consumers and Competition at the FCA, spoke in more detail last month – see our previous briefing). Each of these matters will need to be considered carefully and a firm's mitigation strategies documented appropriately, which may require introducing new controls (for example, to meet the risk of financial crime), amending  existing policies or drafting new ones, and potentially also amending employment contracts.

Home visits

The FCA has also raised the prospect of visits - including supervisory and enforcement visits - to the homes of staff who work remotely, warning that it has the power to visit "any location where work is performed, business is carried out and employees are based (including residential addresses) for any regulatory purposes". The FCA goes on to say that firms are responsible for ensuring their employees understand that such visits may take place. 

The FCA does not specify under which particular power these visits would be carried out and it is therefore not clear whether a warrant would be required (under sections 122D and 177 of the Financial Services and Markets Act 2000).  The FCA Handbook refers generally to the use of "on-site inspections" and "visits", but does not specify that those visits can be conducted at residential premises. 

The spectre of residential visits raises other important questions including:

• Whether a firm can require employees to allow the FCA to enter residential premises – firms may already have home working policies, which give the firm a right to access employees' homes for health and safety reasons or to repair or recover firm property. However not all firms will have these arrangements in place and an obligation to admit the FCA is a different matter, particularly if it would encompass FCA visits without prior notice. While this could be provided for in contracts and policies, it will need to be managed sensitively, as provision for this kind of visit may be resisted by employees as intrusive; it should also be noted that there may be situations where the employee is not the owner or tenant of the premises from which they work, and so their consent may not be sufficient;
• Whether an employee's refusal to allow the FCA entry into a residential premises would be regarded as non-cooperation, on the part of the individual, or the firm, with the regulator; and
• The interaction of any purported right of entry (or contractual or policy provisions requiring an employee to permit such entry) with a person's right to respect for private and family life under article 8 of the European Convention on Human Rights.

While the FCA appears to consider this a part of regulatory 'business as usual', such visits have real potential to create thorny problems for firms and their employees.  Will it lead to a reconsideration of whether regulated business should be conducted from home? We will have to wait and see.  

Authors: Ruby Hamid, Partner, Hannah Martin, Senior Associate, and Jack Allen, Solicitor