The FCA has published new guidance on its website setting out its expectations for firms looking to operate remote or hybrid working arrangements on a permanent basis. Recognising that the Covid-19 pandemic may have had a long-term effect on working practices, the guidance sets out expectations for authorised firms, firms applying to become authorised and those proposing to submit further applications (for example, variations of permission). Unsurprisingly given the pace of change of working practices, the guidance makes clear that the FCA’s expectations are likely to evolve and that applications will need to be considered on a case-by-case basis according to the particular facts that apply to that firm. Importantly, it makes clear that “International firms should continue to have an establishment or physical presence in the UK”.
For firms that are authorised already and considering remote or hybrid working, the guidance suggests that the FCA will look to evaluate how firms operate their business, and how they continue to engage with the FCA.
How firms operate
The guidance sets out that a firm should be able to show how the change in working practices does not impact negatively upon factors including:
- how it continues to meet the threshold conditions;
- how the FCA receives information from the firm;
- the accuracy of the FS Register; and
- how the firm oversees outsourced functions.
Looking towards the FCA’s statutory objectives, the guidance also asks firms to consider whether these arrangements will cause detriment to consumers, damage the integrity of the market, increase the risk of financial crime and reduce competition.
Addressing the potential mitigation of these risks, the FCA highlights the requirement for ‘satisfactory planning’. Accordingly, the guidance refers to the need for firms to demonstrate that there is a plan in place which has been reviewed before any temporary changes become permanent, and that it will be reviewed periodically to take account of changes, new risks, and so on.
The guidance provides a further list of factors to take into account, including:
- maintaining appropriate governance and oversight (for example, Senior Managers, the Board and so on);
- ensuring control functions can carry out their roles unaffected;
- making sure that the firm has the necessary IT functionality; and
- that the firm has considered data, cyber and security risks.
A welcome factor within the guidance concerns ensuring that an appropriate culture is put in place and can be maintained, and that the firm has considered the effect on staff (which includes wellbeing, diversity and inclusion matters and training).
The guidance also makes a specific reference to the situation where staff may be working from abroad, which requires its own consideration of operational and legal risks.
Engagement with the FCA
An interesting aspect of the guidance concerns firms’ engagement with the FCA. This could be relatively straightforward, such as ensuring that the FS Register details (on business address) remain up to date.
However, it also includes factors that may not have been readily considered, such as the effect on and necessary approvals from individuals where a private residential address is the principal place of business; this includes people who live at the property but are not employees. The guidance specifically calls out the FCA’s “powers to visit any location where work is performed, business is carried out and employees are based” for regulatory purposes, which includes residential premises (for example, on enforcement or supervisory visits). It is clearly important that firms operating in this space are prepared for this and have ensured that employees are aware and understand this fact.
Finally, taking account of firms’ notification obligations under both Principle 11 and additional rules and guidance under SUP 15, it is clearly important that firms seeking to make these types of changes consider if there is a need to inform the FCA before making any change permanent. In practice, and given the impact that changes of this nature can have upon the operation of businesses, it is likely in many cases to be something that should be discussed with the FCA at the earliest opportunity.
Firms applying to become authorised
For firms applying to become authorised, many of the factors concerning firms which are authorised already (set out in part above) also apply and will need to be considered as part of the application. In this regard, applicants will need to set out how they address factors including:
- presence of staff in other jurisdictions, including the legal implications of this type of working arrangement;
- how key functions will be performed and overseen;
- the location of Senior Managers and how they plan to oversee the firm’s activities; and
- plans for business continuity (including using home networks).
It is important to note that the FCA’s guidance is indicative and non-exhaustive, but nevertheless it is helpful in distilling some of the key factors to be taken into consideration if a firm is looking to turn temporary hybrid or remote working arrangements into a permanent setup. Going forward, it should form a useful part of firms’ wider planning exercises.