Mobile phone recording UK
For Lockdown 3.0 the UK FCA has set the ball rolling with their first Market Watch for 2021 in January covering recording telephone conversations and electronic communications when alternative working arrangements are in place, including increased homeworking. The FCA has clearly stated that firms must obey the Senior Management Arrangements, Systems and Controls sourcebook (SYSC 10A) recording obligations. In practice this means 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. Firms must ensure that their recording policies can identify calls and communications that directly relate to the performance of in-scope activities. They should also identify communications intended to lead up to these activities being performed or where there is a reasonable prospect of such activities being performed. Depending on the circumstances, this may also include internal conversations concerning in-scope activities.”
Mobile phone recording Europe and the States
In Europe meanwhile Esma’s pronouncement in March 2020 in response to Lockdown 1.0 remains in place. However, with the caveats imposed such as taking detailed notes of conversations, it is probably easier by now to record than administer such a workaround. In the US the CFTC is considering extending the relief for recording of oral communications and the time-stamp requirement. Again this has a caveat that firms have a solution in place for the end of the relief period that “should include, at a minimum, the use of technology to ensure oral records are recorded and maintained for any remote worker and that the time-stamp requirements related to any person receiving a customer order are denoted appropriately through automation by electronic means.”
Market abuse and surveillance
Another key area that has been highlighted by the UK FCA is around market abuse and surveillance, which, having so many staff working from home, was difficult for many firms to monitor. Considering the new working arrangements, the FCA highlighted that firms should review and update their market abuse risk assessments in response to any identified heightened or additional risks arising from the new working arrangements. Core to achieving this is the question: “Does the surveillance system have the right data inputs to cover all trading activities?”
This question is leading many to look at enhancing their IT platforms, and the structure of them, so that remote staff can safely access them, which is aided if done using a single point of control combined with a single solution and supported by a single source of truth. Compliance and surveillance will then be easier to achieve in an optimal fashion.
Another area of concern was around regulatory reporting. Anecdotal evidence suggests most firms may have experienced problems with maintaining accurate reports with some suggesting this could be more than 65 percent of reporting firms. Although regulator forbearance was evident, this will not always be the case, and firms need to be prepared to show they have robust plans in place. It would have come as a relief that regulators postponed specific critical global deadlines during the first lockdown such as the SFTR go-live date, RTS27 report publishing dates, SI calculation dates and amendments to CRR and CRR II. However, those were temporary postponements and, converse to this, is that we can expect the continued pandemic to spur further regulatory adjustments down the line which will undoubtedly centre on business continuity planning based on the observed implementation of ‘existing’ plans. Firms need to react to this, and the lessons learnt to ensure they do not run into the same problems in the future.
For customers, the pandemic has also caused issues and they have been looking at banks for assistance; the first concerns were around liquidity, credit and working capital. Digital access became key and, as markets became more volatile, hedging came high on the agenda. For those companies whose banks allowed them digital access to a single dealer platform, timely information and offered agility in execution while mitigating operational risk, were better placed to cope with remote working. In markets where there was a higher electronification available, such as the FX market, day-to-day operations were much easier and could return to being more like “business as usual”; underscoring the importance of the single dealer platform. This experience, leveraging digital platforms that demonstrated the ability to withstand a sudden shock, is likely to increase the electronification of markets and the ability to serve customers electronically will become even more paramount.
Another crucial area was the absolute requirement to keep money moving. Payments systems globally held up well with little disruption. Some jurisdictions introduced earlier cut-off times, however few temporary closures to the payment systems themselves were reported. Customers were able to move money and those whose bank offered a robust payment platform electronically were able to adjust their workflows easily to the new environment. Banks deploying an electronic payments platform that allows for payment creation, FX execution, forward hedging, comprehensive checking, authorisation, permissions and a simple customer workflow, will have earned customer loyalty in this age of increased competition from the fintechs. Certainly banks, large and small, that do not offer an electronic payments platform that handles both domestic and cross-border payments, with full functionality and client tools, will need to look at providing, what is now likely to be viewed as, this essential service.
Another area that will be focused upon is the increased use of mobile apps and we can expect that more and more participants will be looking at this across a broad swathe of their businesses. On the buy-side many may well question the stark fact that they can run their personal banking requirements seamlessly from their mobile devices, but that when it comes to the day job, they do not see the same level of functionality available. It is true that for many banks the treasury management systems do not make much use of mobile technology and this is likely to change. Obviously the more you can consolidate on a single platform the easier it is to achieve and will lend itself to building remote working tools as you integrate other areas of the bank with your front office. This will also aid the essential Regulatory Reporting noted above. Incorporating and merging reporting to a single platform and risk management system, with the ability to take advantage of interoperability with regulators, trade repositories and approved reporting mechanisms will provide a global solution to the problem.
Business continuity planning
Business continuity planning is going to change going forward. Relying on disaster recovery sites is probably a thing of the past given the way the Industry has managed to cope with a sudden requirement for remote working being conducted from home.
Resources will be diverted to increasing the number tools, workflows and processes needed which such an abrupt change entails. Much more focus will be on integrating legacy systems into a single treasury management and risk system which incorporates both the executing trading functions, with credit and rate engines, and the customer facing functionality such as single dealer platforms, connectivity to multi bank platforms and full sales desk functionality. This makes remote working much more efficient and reduces additional latencies being built in as can be the case with a multiple system approach. It will also aid compliance and the associated various lines of defence to do their job in a more thorough manner when faced with the current circumstances.
Reacting to this crisis will give those smaller players, below the major and super regional banks, an insight into how alternative approaches could not only bring efficiencies in coping with all the additional demands, but also the benefits of bringing important functions in-house instead of outsourcing or white labelling them. They will find that this allows them to offer tailor made services to their particular segments of clients and bring the rewards of better customer retention and the resultant increase in profitability per client.
In summary, the industry has done very well in coping with the suddenness of the pandemic and both the banks and their customers have shown that day-to-day and exception management has coped well. Those with integrated systems and the ability to leverage existing digital channels have fared particularly well, and this whole experience is likely to spur others to adapt their systems and processes to fit with potentially long periods of remote working. When the new “business as usual” returns it is likely to be after the lessons of a very long, extreme stress scenario have been learnt and will usher in a new approach to much of what was previously taken as a given. In the words of John C Maxwell “Change is inevitable. Growth is optional”.
If you would like to discuss anything mentioned above in more detail, please contact David Woolcock at David.firstname.lastname@example.org.