By Dave Millett, Equinox — MiFID (The Markets in Financial Instruments Directive) applied in the UK from November 2007. Ten years on, in the light of the financial crisis, it’s being revised with the aim of improving the functioning of financial markets and strengthening investor protection. MiFID is the EU legislation regulating firms providing services to clients linked to ‘financial instruments’.
The new legislation (MiFID II) comes in on 3 January 2018. It includes both a revised MiFID and a new Markets in Financial Instruments Regulation. Many more organisations, including smaller ones, will now fall under the legislation and be required to comply.
Recent surveys show that most companies remain unaware of the coming changes or don’t fear they won’t be compliant in time. A survey by Duff & Phelps among senior financial services professionals showed that only 36% of financial services firms subject to MiFID II are confident they’ll be able to comply with the regulation by the implementation date.
Who falls under the legislation?
The legislation lists a raft of services that will now be covered. However, companies 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 implies that many IFAs and mortgage brokers may get caught up. There is also a view that credit institutions, corporate finance companies, investment firms and broker – dealers will be caught up by the new legislation.
What does this involve?
With MiFID II, all 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 five years, sometimes seven years or the duration of the relationship with the client.
What are you telecoms options?
In terms of fixed lines it depends on what you are currently using.
* Current Solution: Landlines – no system
o Options: Recording a phone is now possible via cloud based providers but you may have to consider a switch to a FCA compliant VoIP provider as the most cost effective option
* Current solution: Phone system with landlines or SIP
o Options: You add a on premise call recorded or some SIP providers offer in the cloud recording but you would need to check on FCA compliance and storage costs. On premise solutions tend to high quite a large capital outlay but were developed specifically for this purpose.
* Current solution: VoIP/Skype for business
o Options: You should ask your supplier to provide written confirmation from their legal / operational teams as to whether the call recording is FCA compliant. A lot of VoIP providers do not offer FCA compliant recording merely just using Wav files. You should also check out how long they store the calls for and the costs.
Mobiles can be even more challenging especially if you have the added complication of SMS to take into account.
* Solution: Ban mobiles
o Pros: Simple
o Cons: Reduces productivity and flexible working
* Solution: Add mobile clients
o Pros: Can add to existing mobiles; all recordings in one place
o Cons: Can’t record SMS; risk of mobile being used
* Solution: Switch to recordable sims
o Pros: Records calls and SMS
o Cons: Requires being out of contract on your current mobiles
You can see that solutions are available. You’ll need to find out if your current supplier can offer or support them and what you’ll do if they can’t. For example, when VoIP suppliers do not offer FCA compliant call recording you’ll have a problem to address.
If you are part way through a contract it creates some interesting legal questions. Can they charge penalties if you leave to go to another supplier that can offer it? I would suggest they are on dicey ground as their product is no longer fit for purpose. If they will not let you leave they are forcing you to break the law. With a contract for mobiles if your supplier gave you e.g. handsets as part of the deal and was spreading the costs over the contract, there is an argument that they could ask for the balance of that to be paid for, providing they unlocked them so they could be reused.
If you are in any doubt about whether you should be recording your communications take advice while you have time to get a system in place and train your employees in your new procedures.
Dave Millett has over 35 years’ experience in the Telecoms Industry. He has worked in European Director roles for several global companies. He now runs Equinox, a leading independent brokerage and consultancy firm. He works with many companies, charities and other organisations and has helped them achieve savings of up to 80%. He also regularly advises telecom suppliers on improving their products and propositions.