The Markets in Financial Instruments Directive (MIFID II) is the EU legislation that regulates firms who provide services to clients linked to ‘financial instruments’. MiFID II was applied in the UK from November 2007, but is now being revised to improve the functioning of financial markets in light of the financial crisis and to strengthen investor protection.
The changes are currently set to take effect from 3 January 2018, with the new legislation being known as MiFID II – this includes a revised MiFID and a new Markets in Financial Instruments Regulation (MiFIR).
A survey of senior financial services professionals by corporate finance adviser Duff & Phelps showed that just 36 per cent of financial services firms that are subject to MiFID II are confident they will be able to comply with the regulation by the January 2018 implementation date. Another survey by PA Consulting had very similar results.
The legislation lists a raft of services that will now be covered but companies still have to decide if it affects them or not. It is generally understood that commodities companies that were left outside of the first MIFID will now be covered, as will insurance brokers who take cover products which have an ‘investment element’ i.e. where that maturity or surrender value is wholly or partially exposed, directly or indirectly, to market fluctuations.
This would also imply that many IFAs and mortgage brokers may get caught up. There is also a view that credit institutions, corporate finance companies, investment firms and broker – dealers will be caught up by the new legislation.
With MiFID II, all firms will have to take all reasonable steps to record relevant telephone conversations, electronic communications and face to face meetings, which relate to actual or possible transactions, both for clients and on the firm’s own account. The records must demonstrate any terms of any orders placed and will be used to detect any market abuse. The records will need to be kept for at least five years, sometimes seven years or the duration of the relationship with the client.
So, what are your options with regards to telecoms on both your fixed and mobile telecoms.
Dave Millett from independent telecoms brokerage has the following advice:
In terms of fixed lines, it depends on what you are currently using:
Landlines – no system
Recording just a phone is now possible via cloud based providers but you may have to consider a switch to a FCA compliant VoIP provider as the most cost effective option
Phone system with landlines or SIP
You add a on premise call recorded or some SIP providers offer in the cloud recording but you would need to check on FCA compliance and storage costs. On premise solutions tend to high quite a large capital outlay but were developed specifically for this purpose
VoIP / Skype for business
You should ask your supplier to provide written confirmation from their legal / operational teams as to whether the call recording is FCA compliant. A lot of VoIP providers do not offer FCA compliant recording merely just using Wav files. You should also check out how long they store the calls for and the costs
Mobiles can be a bit more challenging and if your staff use SMS, this complicates it still further:
1. Ban mobiles
Cons: Reduces productivity and flexible working
2. Add mobile clients
Pros: Can add to existing mobiles. All recordings in one place
Cons: Can’t record SMS. Risk of mobile being used
3. Switch to recordable sims
Pros: Records calls and SMS
Cons: Requires being out of contract on your current mobiles
As can be seen solutions are available but what if your current supplier cannot offer or support them and you are part way through a contract, for example, when VoIP suppliers do not offer FCA compliant call recording? If you are part way through a contract it creates some interesting legal questions. Can they charge penalties if you leave to go to another supplier that can offer it?
I would suggest they are on dodgy ground as their product is not fit for purpose any more, and if they will not let you leave they are forcing you to break the law. The same would be true if you are part way through a mobile contract.
If your supplier gave you handsets or other hardware as part of the deal and was spreading the costs over the contract, then there is an argument that they could ask for the balance of that to be paid for providing they unlocked them so they could be reused.
If you are going start recording for the first time you may want to consider using analytics or word spotting to flag or alert on specific calls.
The key thing is to recognise that the legislation is coming and if you are in any doubt as to whether you should be recording your communications take advice whilst there is still time to put in place plans.