Can you prevent a Civil Financial Penalty whilst working remotely?
Change in practices: continuing standards (COVID 19 and working from home)
Covering topics of: CDD, Data Protection, Voice Recording, Short Selling and other fund matters
Applicable to: each financial industry sector, investment businesses, funds and fund services businesses
These unprecedented circumstances have caused the practices with which we are all so familiar, not least through absence from a structured office environment, to be called into question.
As we are all finding our feet in a somewhat changed working environment there are a few things that have occurred to us, relating to home working, which are matters we know industry participants to be concerned about.
1. Customer Due Diligence – certification
At any point, even while working from home, all financial services employees are required to collect customer due diligence and request refreshed documentation when there is a trigger event. These are usual matters required by the policies and procedures of their employer, which follow the requirements of the handbook for the prevention and detection of money laundering and the financing of terrorism (the “AML Handbook”). The AML Handbook provides guidance relating to statutory requirements as set out in the Money Laundering (Jersey) Order 2008 (“MLO”). Whilst working from home these statutory requirements remain applicable. As many customers are not Jersey resident, our financial services industry relies on the guidance set out in the AML Handbook, not least with regard to identification, verification and certification of documentation. However, at this particular time when customers in many jurisdictions are required, like us, to practise social distancing they are unable to present themselves face to face for documentation (comprising verification of identification) to be certified. How then is a customer able to provide your firm with appropriately certified material when the customer is prevented from visiting a notary or lawyer?
It is possible, we believe, for those deemed suitable certifiers (per the AML Handbook) to certify by other means. The MLO and the AML Handbook is not explicit that a person has to be physically present for the purposes of certification. Utilising technology such as FaceTime, WhatsApp video (amongst other technology) could enable a certifier to see both a customer and their relevant documentation (perhaps passport) close up and together, and indeed geolocation technology may also be helpful in certain instances. Evidence of this “meeting” could be harnessed by screenshots and any PDF copy document sent by the (proposed) customer could be certified (provided all details match with the photographic evidence taken). Albeit the Financial Action Task Force contemplates electronic identification and verification, this appears to us to be a differing set of circumstances, not least that this does not involve any digital identity (ID) technology. We anticipate the Jersey Financial Services Commission will issue further guidance on these matters in due course.
2. Data Protection
In order to ensure that data is used and maintained as indicated to a customer through your privacy notice and terms of business, take care to ensure that all personnel operate within the confines of the employers’ systems and that documents are not sent to or saved to the employees’ personal computer, or distributed via personal email addresses. Often working remotely can present difficulties with IT systems especially given the added strain on the Island’s domestic networks. Frustrations with IT capability may impact normal employee practice – for example, a quick email from a work environment to a personal home email address in order to be able to print a document. A timely reminder to your employees that they are still obliged to follow your relevant data protection policies and employees should be provided with access to appropriate procedures.
3. Telephone Recordings – mobile telephones
There are a number of investment firms in the island which are subject to MiFID (Markets in Financial Instruments Directive) requirements. These requirements include the fact that recordings must be made of voice communications involving investment business activities: all dealing, managing and advising. The speed at which COVID-19 has arrived has caused more employees to work from home and for a longer time than perhaps anticipated by most firms’ business continuity plans. The likelihood of all employees having mobile telephones which are able to record calls appears to us to be limited. ESMA (the European Securities and Markets Authority) has issued a paper (see link below and which should be read in full to understand its context), which provides the following helpful commentary:
“under these exceptional scenarios, firms are unable to record voice communications, ESMA expects them to consider what alternative steps they could take to mitigate the risks related to the lack of recording. This could include the use of written minutes or notes of telephone conversations when providing services to clients, subject to prior information being provided to the client of the impossibility to record the call and that written minutes or notes of the call will be taken instead. In these scenarios, firms should also ensure enhanced monitoring and ex-post review of relevant orders and transactions”.
4. Funds – emergency short selling prohibition on shares of certain European markets
For all funds, whilst it may not an explicit regulatory requirement upon the fund itself, there is merit in reading and taking heed of the opinions of ESMA in relation to imposed emergency measures to prohibit the short selling on shares (and other instruments) of certain European markets – for example, Spain, Italy, France. Alternative investment fund managers, certain funds and market participants may have a greater obligation to note these requirements. A link to ESMA’s official opinions on short selling is here:
Other fund matters to contemplate:
- the difficulties in determining values of investments; not only might this impact the fund vehicle itself but this will also impact underlying fund vehicles. Anticipate, particularly for those funds which have a financial year end at the end of March, that this may have an impact on the ability to produce financial statements of the fund and late submission to stakeholders (eg external auditors, investors and regulators)
- consider the duration of the life of a fund – for example, present market conditions may mean that consideration should now be given to extending the life of the fund.
- consider investment restrictions and objectives – price moves may result in certain assets comprising a greater percentage of the fund and resulting in a breach of investment restriction or perhaps a breach in investment objective.
- investors – consider investor communications and what the fund ought to be issuing to investors. In relation to those funds where further calls are required or monies are to be drawn down, maintain communication and anticipate investor defaults on the fund as a whole.
- fees and charges – now, more than ever, it is important to serve the bests interest of the customer. As a service provider to a fund, as a fund charging fees to investors each must consider the appropriateness of fees and charges and revisions made as applicable or necessary.
- Facility agreements: consider the impact of the economic situation on Loan to Value (LTV) ratios.
Please note that each of the above points may require regulatory approvals or notifications to your regulator.
Oben Regulatory is a regulatory advisory firm, should you wish to discuss any of the above or require any advice, guidance or assistance – please contact Nicola Ingram +44 1534 849716 or one of our team at https://www.oben.je/people/. Oben Law will be able to offer legal advice relating to the above matters.