1. MAKING SENSE OF MIFID II TRUSTED TECHNOLOGY PARTNER
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 investors 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
firms 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 organisations 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 firms
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 todays
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
[email protected] 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 [email protected] 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
[email protected] T 020 7093 5010 www.rfa.com