2. THE PROPOSED LEGISLATION
MiFID was introduced to the European
Union financial markets regulatory system
in November 2007 when it became a core
piece of legislation. Its main objectives were
to improve investor protection, increase
competition and help to create a single
European financial services market.
Despite the Directive leading to reductions in
trading costs and faster trading times, these
benefits have not always been passed on to
the consumer. Enter MiFID II and MiFIR.
MiFID II and MiFIR were conceived in
response to the global financial crisis, in
a bid to prevent future crises, strengthen
the financial services market and, a key
priority, to protect investor’s interests.
MiFID II covers seven main areas, these being:
n Market structures
n OTC Derivatives and commodities
n Authorisation and organisational requirements
n Third country access
n Restrictions and position limits
n Transparency
n Investor protection and provision of
investment services – this is the area
that we are focusing on here
INVESTOR PROTECTION – RECORDING
OF CLIENT COMMUNICATIONS
Current FCA requirements state that a firm
must take reasonable steps to record relevant
telephone conversations, and to keep a
copy of relevant electronic communications,
made with, sent from or received on
equipment that is provided by the firm to
an employee or contractor; or on personal
equipment which has been sanctioned for an
employee or contractor to use for business
purposes. The FCA states also that a firm
must take reasonable steps to prevent
an employee or contractor from making,
sending or receiving relevant telephone
conversations and electronic communications
on privately-owned equipment which the
firm is unable to record or copy. Records
must be maintained for 3 months.
MiFID II takes this further and states
that all eligible 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 5 years.
MIFID REPORT TRUSTED TECHNOLOGY PARTNER
3. WHO IS AFFECTED?
The list of those affected by MiFID II is
significantly more comprehensive than
that under the FCA and includes:
n Investment firms
n Credit institutions
n Portfolio managers
n Broker-dealers
n Stock brokers
n Corporate finance companies
n Commodity firms
n Market operators
n Central counterparties
n Data service providers
THE STATE OF PLAY TODAY
There are various ways that firms today are
meeting the FCA call recording requirements,
utilising current call recording technology.
Many systems are unable to handle mobile
call recording and in order to get around this
some firms have completely banned the use
of mobiles for trading. This “management by
policy” is effective but somewhat limiting for
the firm and removes a number of effective
and valuable communication channels that
could be delivering business efficiencies.
Some firms only allow trades to take place
through a trading desk. All calls made by
the trading desk would be recorded and
therefore compliant under current legislation.
A number of firms also wrongly believed
that trades which happened when traders
used personal mobiles, were not covered by
the legislation and they were therefore not
liable - particularly if the traders had signed a
declaration stating that they would not trade
on devices that were not corporately owned.
The onus on the recording of the calls still
lies with the trading organisation who must
be seen to have taken all reasonable steps.
WHAT DO I NEED TO DO AND WHEN?
By January 2017 you need to have put in place
measures to address the following areas:
MIFID REPORT TRUSTED TECHNOLOGY PARTNER
Throughout 2015 - Scope the work
Late 2015 - Plan your data lifecycle
Early 2016 - Gap analysis
Mid 2016
n Data will need to be retained for 5 years, so plan the
lifecycle of your recorded data carefully to ensure it
is being stored on the most efficient media and that
you can retrieve it simply and quickly.
n Investigate storage management software that can
automate the movement of your data through its
lifecycle.
n Evaluate the software tools that are available to
record all relevant communications. Can your
current infrastructure house the data that is
generated, or would a cloud based solution better
meet your needs?
n Test your chosen solution and go live by late 2016
to ensure that you are meeting regulations by
January 2017.
n Calculate the employees that will be affected by
the legislation, the number of communications that
you will need to record on a daily, weekly, monthly,
yearly basis and estimate the total size of the data
set based on average fie sizes.
n Establish a set of new policies and procedures
that will be needed to accommodate the recording
process.
4. KEY CONCERNS
The scope of the legislation regarding
communication recording is vast.
There is a common belief that the MiFID II
telephone recording requirements will be
very expensive to implement with costs
likely to significantly outweigh benefits.
“There are cost effective call recording
solutions available which also cover
mobile and electronic communications.”
Many companies expressed concern about the
sheer volume of communication that would
need to be stored. The regulations effectively
cover all of an organisation’s calls and
seemingly rule out compression of the files.
“Internal storage systems are unlikely to be
able to cope with the volume required. One
route forward might be to only keep the
most recent records on site and to back up
historical data to a secure cloud server. Cloud
storage from the outset is another solution.
Traders receiving emailed sound files of
their own calls on request could also cause
an organisation network storage issues.”
Many firms have expressed their
concerns that MiFID II is lacking
detail and clarity in terms of the
correspondence that is to be recorded.
“This is outlined as: reception and
transmission of orders, execution of orders on
behalf of clients, and dealing on own account.
The specific conversations and
communications that should be recorded in
relation to these investment services are: (i)
the receipt of an order from a client; (ii) the
transmission of an order (both where the
investment firm will transmit the order, and
where it will execute it); (iii) the conclusion of a
transaction when executing orders on behalf of
clients; and (iv) the conclusion of a transaction
when dealing on own account regardless of
whether a client is involved in the transaction.”
Regulation and transparency versus
business efficiency and investor protection.
“The regulations have a stated aim to
safeguard and protect investors. But
any systems put in place must enable
traders to continue to act and respond
to market conditions quickly – that is
also in the interests of investors.”
The removal of the exemption for
discretionary investment managers to record
calls looks likely to place a considerable
burden on smaller firms. Questions are
raised as to why this exemption is being lifted,
other than to ensure regulatory consistency.
“From a consumer and investor perspective,
the blanket call recording requirement
will be beneficial, allowing the regulatory
bodies to assess firm’s compliance and
identify cases of market abuse.”
MIFID REPORT TRUSTED TECHNOLOGY PARTNER
5. THE NEXT STEPS
It is clear that firms must take action if they
are to adhere to MiFID II and MiFIR when they
come into play in January 2017. The current
policies of banning trading via mobile phones
will not cover those conversations which are
related to trades, but do not directly result
in a trade. These conversations must be
recorded under new MiFID II regulations.
To ban the use of mobile phones altogether is
not a practical step in today’s environment, and
would prevent home or remote working, which
would surely result in a loss of productivity and
difficulty in recruiting and retaining employees.
As the regulations state that all
communications must be recorded, it
makes sense to look at an holistic set of
solutions which would cover email, web
based applications, instant messaging,
mobile conversations, voicemail, landline and
face to face meetings. There are solutions
available, including Voxsmart, which can
do all of these at a price point which is
not prohibitive. The cost can also be offset
against predicted savings that can be brought
about by avoiding legal costs associated with
disputes, or HR cases against employees.
FUTURE ROUNDTABLES
For those who attended, we hope you found
the event useful and informative as a discrete
forum to ask questions, raise concerns
and issues and seek advice from your
contemporaries. We are planning on holding
roundtable lunches on a Quarterly basis and
would welcome your suggestions on topics that
interest you. To submit an issue or topic for
discussion, please email marketing@rfa.com
MIFID REPORT TRUSTED TECHNOLOGY PARTNER
CONTACTS
Oliver Blower is the CEO
of VoxSmart and is a highly
experienced financial
technology executive
with a strong background
in leading high growth
businesses. Oliver has spent
the last 5 years building derivative clearing
businesses within Tier 1 Investment Banks
in response to the regulatory reform of
global Capital Markets. A qualified lawyer,
Oliver is well placed to provide advice and
guidance on the regulatory challenge that
faces financial services firms today.
E Oliver.blower@voxsmart.com
T +44 7952 850 765
www.voxsmart.com
George Ralph is the Managing
Director of RFA UK, with over
15 years’ technical experience
and having founded a number
of successful technology
businesses, he is committed
to providing excellent service
and in establishing RFA UK as the trusted
technology partner to the UK finance sector.
With the spotlight on cybersecurity and data
governance, George can talk to you about
keeping your data safe and secure, whilst
maximising the speeds, performance and
efficiency of your business processes.
E gralph@rfa.com
T 020 7093 5010
www.rfa.com
