On the 3rd January 2018 new legislation known as MiFID II will take effect.
This will include a revised Markets in Financial Instruments Directive (MIFID) and a new Markets in Financial Instruments Regulation (MiFIR). As a result, many companies that fell outside of the original legislation will now be caught by it.
Originally MiFID was applied in the UK from November 2007, but in light of the financial crisis, it is now being revised to improve the functioning of financial markets and strengthen protection for investors.
Yet surveys show that most companies remain unaware of the changes, or don’t think they will be compliant in time. For example, 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.
It’s important to take action now as the implementation date is unlikely to be extended – as it has already been pushed back by 12 months. We are therefore we’re confident the new date will remain fixed. So, who is this new legislation going to affect?
Predictably, the legislation lists a raft of services that will now be covered (that weren’t covered previously) but rather confusingly 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 imply that many IFAs and mortgage brokers may also get caught up. In addition, many believe that corporate finance companies, credit institutions, investment firms and broker – dealers will also be covered by the new legislation.
Under MiFID II, firms 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. These records must be kept for at least five years, (seven years in some cases), or for the duration of the relationship with the client.
It is therefore important that your telecoms are compliant and enable you to meet your obligations under the legislation. So, what are your options with regards to telecoms on both your fixed and mobile telecoms?
For fixed lines, it depends on what you are currently using:
Mobiles may be slightly more challenging especially if your staff use SMS, as this complicates it still further:
On a positive note, it is clear that solutions are available and there is still time to implement them – but you do need to take action sooner rather than later. Come January 3rd you need to be compliant – not just starting to think about it!
However, what happens if you check your telecoms and your current supplier cannot offer or support compliance and you are part way through a contract? For example, when VoIP suppliers do not offer FCA compliant call recording.
This does create some interesting legal questions; for example, 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 no longer fit for purpose, 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. Bear in mind however that 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 the handsets 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. This can save time and help you to locate calls that may need attention or staff who aren’t following the guidelines.
Ultimately, the most important first step is to recognise that the legislation is coming. If you are in any doubt as to whether you should be recording your communications take advice now, whilst there is still time to put the necessary actions and technology in place – and ensure your staff is aware of them and how they work.
Dave Millett, Director, Equinox
Image source: Shutterstock/violetkaipa