Here's a summary of the MiFID II regulations relating to recording of telephone conversations and electronic equipment
In MiFID II, the recording obligation changes to mandatory. Under Article 16 (7) it stipulates that firms must keep records relating to all services, activities, and transactions, including recordings of telephone conversations and electronic communications relating to transactions concluded when dealing on own account and client order services relating to the reception, transmission, and execution of client orders. This includes conversations and communications intended to result in transactions and client order services, even if the transactions or services are not concluded.
Clients must be informed that conversations and communications will be recorded. Firms must take all reasonable steps to record relevant conversations and communications made using equipment provided or permitted by the firm. Orders can be placed through other channels, provided communications are made using a durable medium and meetings are documented. Firms must take reasonable steps to prevent employees and contractors engaging in telephone conversations and electronic communications on privately owned equipment that the firm is unable to record or copy.
Article 16(7) of the Directive states that:
“Records shall include the recording of telephone conversations or electronic communications relating to, at least, transactions concluded when dealing on own account and the provision of client order services that relate to the reception, transmission and execution of client orders.”
Article 16(7) also makes it clear that:
“Such telephone conversations and electronic communications shall also include those that are intended to result in transactions concluded when dealing on own account or in the provision of client order services that relate to the reception, transmission and execution of client orders, even if those conversations or communications do not result in the conclusion of such transactions or in the provision of client order services.”
In addition, Recital 57 of the Directive states that:
“Such records should ensure that there is evidence to…detect any behaviour that may have relevance in terms of market abuse, including when firms deal on own account.”
“Those records should be available to competent authorities in the fulfilment of their supervisory tasks and in the performance of enforcement actions under this Directive and under (the) Regulation”
The rules in COBS11.8 oblige firms to retain records of specific telephone conversations and electronic communications of client order services that relate to the reception, transmission and execution of client orders and proprietary trading. It includes communications that are intended to result in a transaction, even if ultimately, they do not.
What about keeping this information?
COB11.8 requires that once recorded, firms must keep such tapes and electronic communications for a period of at least six months from the date the record was created. However, MiFID II requires these records must be provided to the client upon request and kept for five years, or seven years if requested by the competent authority.
It is therefore worth considering the best method of storing this information, to allocate space and management of this amount of data. Involve your IT team when making these decisions.
Include these requirements as part of your Business Planning and Strategy Culture
Rather than treating these requirements as incidental to your Business needs, include them within your existing policies and procedures. That way, it will become part of your business process, rather than being considered another FCA “thorn” in your side.
As an existing FCA complaint organisation, call recording, including mobile recording, will already be an existing requirement. Most mobile recording applications will already include SMS and media chats. Emails are usually stored within your IT infrastructure, so start to plan this increase in data retrieval and storage and include your IT team in the implementation planning.
Correlating what kind of devices and methods of communication relay are available to your team and your clients, will determine what electronic communications you need to be able to record and keep.
MiFID II also presents stringent guidelines for the documentation of face-to-face meetings. Whilst MiFID II does not demand the recording of face-to-face meetings currently, innovative and forward thinking firms will be considering this aspect in future project planning that may involve your firm’s unified communications recording technology.
A Final Consideration
MIFID II is only one Financial directive, however these changes may help to comply and support other regulations, like ESMA, MAD and MAR for example. Encompassing these changes to meet more than one requirement will ultimately make your organisation comprehensively compliant.
Another consideration would be to investigate the possibilities of speech analytics, that could potentially be used to find calls quickly and easily, to check compliance, by entering words or phrases based on the FCA regulations, like “you have 14 days to cancel” and other must say statements.
When deciding on the best communications recording solution for your business, always ensure that you speak with a dedicated call recording specialist, who can advise and inform you on the best solutions that are suitable for your needs and environment.
This is a summary from our Whitepaper MiFID II and Communications Recording. If your would like a copy please us the Contact Us form on the website or email us at firstname.lastname@example.org We'll send you it, by return.
This information has been compiled through independent research, and is produced as a means of information relay only, as an overview.
Sources: FCA Web site and supporting FCA MiFID application notification guide. Research from reading MiFID II Recordkeeping and telephone and email recording by Hogan Lovells and the concept of the communications diagram from Weston Digital’s MiFID II concerning communications recording.