Overview of MiFID II regulation
The revised Markets in Financial Instruments Directive (MiFID II) comes into force on 3rd January 2018 and it will regulate the financial services sector with a new, much stricter set of rules around call recording.
The regulation will also be applied more widely than the current requirements for recording phone calls, which apply to City traders.
Difference between MiFID I and MiFID II
Under current MiFID II regulations, Members allowed discretion as to whether they required firms to record telephone calls and electronic communications that resulted or might result in transactions. This recording obligation will become mandatory on firms under MiFID II.
What is MiFID II?
Under the revised MiFID II you need to record all conversations that are intended to lead to a transaction or trade, even if they ultimately don’t. These rules apply equally to firms dealing with their own account as well as providing services for external clients. It also includes those who were previously exempt under MiFID I from having to record such as financial advisors and brokers – anyone involved in the advice chain that may lead to a trade or investment.
MiFID II also includes premises in which these calls or conversations take place, and requires that all “communications that are intended to lead to a transaction” be recorded and retained. Firms need to tell clients they are recording their calls and provide them the recordings if they ask. Recordings will also need to be stored for longer – for a minimum of five years against the six months currently required.
More robust rules around how businesses should record and store their conversations will be introduced. MiFID II requires all records be kept in a durable medium that allows them to be replayed or copied but which prevents the original being altered or deleted.
MiFID II also states that businesses must ensure the quality, accuracy and completeness of these records, and they must be stored in a medium that is accessible and readily available to the FCA on request. Under MiFID II businesses will also need to review their recordings from time to time to ensure compliance.
Key objectives of MiFID II
- Mitigate risk, to create a stable, responsible and transparent financial system
- Provide robust levels of investor protection
- Increase competition within EU financial markets
- Standardise and strengthen supervisory and enforcement powers
- Safeguard market quality and trustworthiness
- Introduce standardised conduct obligations to promote good governance
- Increase transparency
- Regulatory Equivalence for ‘Third Country’ entries operating within the EU
- Introduce a new category of trading venue: the organised trading facility or OTF
Who will be affected by MiFID II regulation?
Investment firms
Credit institutions
Portfolio managers
Broker-dealers
Stock brokers
Corporate finance companies
Market operators
Central counterparties
Data service providers
To hear more about MiFID II regulation, please contact us on 0800 206 2107 or email us.
