MiFID II is a set of reforms imposed by the European Union for the financial industry, designed to prevent history from repeating itself in light of the 2008 financial crisis. The legislation is due to come into force at the beginning of January 2018 and it will place stringent requirements on call recording, transparency and disclosure in financial services. As the implications of Britain’s exit from the European Union remain undecided, there is evidence that many businesses are confused over compliance requirements post-Brexit.
There are less than five months until MiFID II legislation comes into force. Despite it being one of the most significant updates to financial oversight in the European financial sector, a recent Aeriandi survey suggests that 25% of IT managers and decision makers and Risk & Compliance managers within UK financial services businesses believe that leaving the EU will mean that their organisation will be exempt from MiFID II compliance. Additionally, 14% stated that they have no idea how Brexit impacts their requirement for compliance.
What are the major impacts?
A key aspect of the new legislation is the changes in requirements relating to the recording and archiving of telephone calls. The Financial Conduct Authority (FCA) currently mandates that only the telephone conversations of individuals directly involved in trading need to be recorded. However, MiFID II broadens the scope considerably for a range of firms to include anyone involved in the advice chain that may result in a trade. Naturally, this has a significant impact regarding the scope of whose conversations must be recorded once the new law takes effect.
Conversations between the likes of wealth managers or independent financial advisers and their clients will now all fall under this scope, and the legislation applies to both fixed line and mobile conversations. All calls must be stored and accessible for a minimum of five years after taking place (seven in some instances), and capabilities monitored on an ongoing basis.
This particular portion of MiFID II is causing a certain degree of consternation. Perhaps unsurprisingly, before MiFID II was announced, few financial institutions had the right infrastructure in place and many are still working on how best to achieve the new compliance requirements. Fortunately for those that do not have the necessary in-house resources, a variety of call recording and archiving solutions are available from third party organisations, which can help to achieve compliance right out of the box. However, choosing the right one can prove difficult without the necessary knowledge of what to look for in a solution.
Call recording requirements
For those firms covered by the legislation, MiFID II mandates that call recordings relating to a financial transaction must be stored for five years after the transaction was made, a significant rise from the six month period currently mandated by current FCA legislation. Not only does this impact heavily on storage resources, but it also presents security challenges, particularly if the recordings contain sensitive financial information.
After all, five years is a long time to keep data safe. Only recording and archive solutions that offer the latest levels of data encryption and provide guarantees about who is able to access recordings should be considered. If a vendor is using out-dated encryption or does not offer ongoing guarantees regarding upgrades to security as/when they become available, they should be avoided at all costs.
