The Markets in Financial Instruments Directive, commonly known as MiFID II, is due to come into force in January 2018.
First introduced by the EU in response to the 2008 financial crisis, MiFID is a set of sweeping reforms for the financial industry designed to prevent history from repeating itself in the same way again.
Replacing the original Directive, MiFID II brings changes to many areas relating to conduct of business, including far more robust rules around the recording and storing of conversations.
Who will need to comply?
Under today's MiFID regulations, businesses involved directly in trading must record conversations. Some are currently exempt, including financial advisers and brokers, as long as they don’t operate across borders or hold client money.
Under the new MiFID II regulations, any business providing financial services to clients linked to ‘financial instruments’ will have to record and store all communications intended to lead to a transaction. In fact, any organisation that's even giving advice that may lead to a trade or investment will need to comply with this rule.
What conversations need to be recorded?
The FCA currently mandates that fixed line and mobile calls must be recorded. The new requirements stipulate that all conversations ‘that are intended to lead to a transaction’ must be recorded; broadened from the previous mandate of ‘client orders and transactions.
MiFID II also includes other communications such as mail, fax, email or audio recording of client orders placed during face-to-face meetings that are intended to result in a trade.
How do these conversations need to be stored?
Under MiFID II, recordings must be stored for a minimum of five years from the date the record is created, and if requested by the competent authority for up to seven years.
All records must be kept in a 'durable medium' so that they can be effectively monitored for compliance, and in a way that allows them to be replayed or copied and ensures the original record cannot be deleted or altered.
Recordings must be stored in a way that makes them accessible and readily available to the FCA on request. And businesses are required to ensure the quality, accuracy and completeness of records.
This is a significant step up from the current rules, whereby recordings must only be kept for at least six months.
How do recordings need to be monitored?
To ensure compliance, businesses will need to review their records on a periodic basis. The monitoring is specified as ‘risk-based and proportionate.
These businesses will also need to prove that the appropriate policies, procedures and management of recording rules are in place and that management have clear oversight of these. They must then periodically re-evaluate the effectiveness of their recording procedures and adopt alternative or additional measures if necessary.
Where they aren’t able to comply with recording policies, they need to investigate why the records were not able to be retained. Records of these investigations must also be kept for the same amount of time as the original record’s retention period.
Unlike today’s accepted practice, whereby to simply record conversations is sufficient to be compliant.
The clock is ticking… will you be ready for MiFID II when is come into force on January 3, 2018?
Get in touch today to find out how we can help you comply with these new regulations.