Article published in FX-MM, June 2016.
Robert Powell, Global Head of Compliance at IPC Systems, explains why trading firms need to start preparing now for the fundamental changes to required record keeping contained in MiFID II despite the recently announced delay in its implementation.
Last year, the European Markets Authority (ESMA) provided its final view of the technical standards implied under MiFID II, which will alter the functionality of European financial markets by increasing their transparency, safety and resilience, as well as providing enhanced investor protection. Despite the European Council recently confirming a year’s delay, financial organisations would be wise to start preparing for this increased regulatory scrutiny.
In particular, the records-keeping section of the advice will instigate a great deal of change in the way that communication records are maintained in Europe. The big question is, how will this impact organisations’ trading communications in the future? Here are the five principle ways MiFID II regulations will impact financial organisations, once they’re enacted in 2018.
- Longer retention periods will be required
In the UK, the current recording retention rules are driven by the Conduct of Business Sourcebook (COBS §11.8.5), last amended in November 2014 to remove an exemption on mobile recording. These rules require only 180 days of call and communications data to be kept. Many regulated UK firms already go beyond this, retaining five or seven years of records, as a best practice measure or to comply with Tax Authority rules. Under MiFID II there will be a mandatory increase to five years for all regulated firms not already doing so.
- A wider scope of communications recordings is specified
MiFID II will require all “communications that are intended to lead to a transaction” to be recorded, rather than the previous, narrower mandate of “client orders and transactions.” This will drastically increase the scope of communications that are required to be retained. Further, the change in scope includes personnel who will now need to be recorded. Firms currently only record employees that ‘commit’ transactions and will need to begin to record all ‘regulated’ users. The addition of a Pan-European requirement to archive mobile and fixed telephone calls, represents a notable addition to the categories of media retained in those jurisdictions. Currently, only a few countries, including the United Kingdom and Norway, require mobile phones to be recorded. The old banking policy directing employees not to use their mobile phones for “client orders and transactions” will be ineffective, nor will it be broad enough in scope to satisfy the new regulatory framework. In many European countries, this means that solutions will need to be deployed to allow for the recording of mobile calls.