10 Nov MiFID II: How can firms meet recording requirements?
As is often the case with sequels, MiFID II is more ambitious, more expansive and arguably more confusing than its predecessor. However, with the January 2018 deadline fast approaching, firms throughout the financial sector are putting the necessary strategies in place to meet MiFID II’s increased compliance requirements, which aim to safeguard market quality, regain consumer trust, provide robust levels of investor protection and increase transparency throughout the industry.
Transparency and accountability are the twin themes that underpin the changes coming into effect in January. At the centre of these themes are the new requirements relating to the recording of all client calls and the creation of written notes of face-to-face client meetings. This required recording of all conversations and communications with clients that ‘relate to or intend to lead to the conclusion of a transaction’ marks a dramatic shift in the day-to-day operations of financial firms of all sizes.
With the research changes already increasing costs for firms, it could be easy for the introduction of more robust record-keeping requirements to take a backseat. However, firms that fail to put processes in place to meet these requirements now will undoubtedly feel the strain financially and, perhaps more importantly, operationally in the near future.
It appears that many firms appreciate the impact the regulatory changes will have, as evidenced by the vocal opposition of several industry bodies to mandatory record-keeping and their demands for greater clarity in relation to the exact scope of such recording.
In the wake of such opposition, some industry commentators have portrayed the Financial Conduct Authority (FCA) as backtracking under pressure in their clarification that they will not require firms to record face-to-face meetings and instead require an ‘analogous’ written note of such meetings. However, the extent to which this indicates any kind of real concession on the part of the regulator is dubious.
The following information will be required as a minimum in the written records of meetings:
• The identity of the attendees
• The date and time of the meeting
• The location of the meeting
• The initiator of the meeting
• Relevant information about the client order, including the price, volume, type of order and when it shall be transmitted or executed.
But the FCA has made it clear that notes of this kind will not meet the same consumer protection standard as audio records of calls and meetings. To meet this standard firms must, according to the FCA, “capture all the main points of the full conversation that are relevant to the order”. It seems then that ‘analogous’ written notes of face-to-face meetings must be exactly that to comply fully with new regulations and must strive to be as detailed as possible. On this the regulator appears unwavering, and in a fast-paced industry, recording, transcribing and diligently maintaining such detailed accounts will have a marked impact on a firm’s ability to work in an efficient manner.
Industry response So, what is the best solution for companies attempting to stay compliant? Many have already initiated minor procedural shifts in the right direction by distributing detailed meeting minute templates to their staff that are to be strictly adhered to on a company-wide basis. But the subsequent challenge for these firms will be individual compliance – those conducting the meetings will be responsible for sticking to the outline as closely as possible so that filling in the templates after the fact will produce notes with the level of detail that is required.
Though this method does address the most basic requirements set out by the FCA, the margin for error is still great, so it does not represent a bulletproof solution. Too much can be misremembered from the time a meeting ends to when the individual is back at his desk and has a moment to fill out a meeting template. The impracticality of recording sound files for every face-to-face meeting held is the main hurdle faced in this aspect of the new regulations.
While recording telephone conversations to keep compliant with MiFID II is not without issue (creating and enforcing new in-house written policies, training staff and alerting clients of their rights regarding the recordings), both the solution and the equipment needed for the job are comparatively straightforward: record the conversation, keep the sound file.
With face-to-face meetings, the difficulty lies in finding the most accurate way to record the content in lieu of an exact solution. A few frontrunners have risen to the challenge, though, combining the use of standardised company meeting templates and the audio recording method used for telephone conversations to produce as simple and effective a solution as possible. They are recording their own audio notes pertaining to their meetings immediately after the fact, allowing for more accurate transcriptions to be produced later on.
This solution ensures that:
• Very little will be forgotten from meeting to meeting, so written accounts will be as accurate as possible
• The mounting administrative burden as more written records become imperative will be eased, as audio notes can easily be transcribed later, saving individuals and their support staff time and energy.
The recording of client calls has dominated much of the press coverage around MiFID II, but the FCA’s statements have made it clear that they are every bit as serious about written records of face-to-face meetings. Firms that ignore the latter will only find themselves with half of a solution.
Matt Riordan is a proofreader at VoiceNotes, a London-based dictation, transcription and proofreading company helping financial professionals streamline their processes in the run-up to MiFID II. Published November 2017 in Investment Week – https://www.investmentweek.co.uk/investment-week/analysis/3020798/on-the-record-mifid-ii-and-record-keeping