A Closer Look at MiFID II Recording Requirements
The Markets in Financial Instruments Directive II (MiFID II)—arguably the greatest reform to hit Europe’s financial industry—is finally in effect as of January 3, 2018. This EU legislation serves as a much-needed upgrade from the original MiFID, enacted in 2004, and addresses key issues that resulted from the 2008 global financial crisis.
The directive requires all national governments in the EU to adopt certain laws, which they are free to do in their own way should the resulting effect be the same. Financial services institutions—specifically investment firms, credit institutions and trading venues—are subject to MiFID II, including companies that are headquartered outside of the EU but do business there (for a more thorough overview, see this blog by industry analyst Sheila McGee-Smith).
Recording Regulations: Raising the Bar
Perhaps the greatest impact of MiFID II is the law’s tighter recording regulations. Under the 2004 MiFID directive, there was no mandatory requirement to record communications involving client orders. To ensure fairer, safer and more efficient financial markets, MiFID II now requires firms to record communications (both phone and electronic) for the following investment services:
- Reception and transmission of orders
- Execution of orders on behalf of clients
- Dealing on own account (takes place when a firm puts its own trading books at risk)
The specific customer interactions that are required to be recorded in relation to investment services include:
- Receipts of client orders
- Transmissions of orders (both where the investment firm transmits and executes the order)
- Conclusions of transactions when executing orders on behalf of clients
- Conclusions of transactions when dealing on own account, regardless of whether a client is involved in the transaction
Important note: MiFID II covers all communications relating to activities intended to result in the conclusion of a transaction or the provision of client order services, even if they do not result in a financial transaction.
Communication of orders placed through channels other than voice—postal mail, faxes, emails, SMS, face-to-face conversations recorded using written minutes—must be stored in a durable medium.
Keep in mind a few rules that apply to this ‘durable medium’:
- Records must be able to be replayed or copied
- Records must be retained in a format that does not allow the original to be altered or deleted
- Firms are required to ensure the quality, accuracy and completeness of all phone records and electronic communications
- Records must be kept for a minimum of 5 years and, if requested by the National Competent Authority in a specific country, up to 7 years
- Clients must be notified in advance of recording
- Records must cover communications made with, sent from or received by equipment provided or permitted by the investment firm (privately-owned equipment used by employees or contractors is not prohibited)
Ensuring Compliancy with MiFID II Recording Regulations
If your business is involved in financial services in any way—even if it’s not your main focus (i.e. credit institutions performing investment activities, branches of third country firms)—you’ll need to investigate to understand whether this new legislation will affect you and, if so, what you need to do to comply.
We recommend a thorough review of compliance across all channels (including back office processes) to determine if they meet the new regulations. If not, you’ll need to deploy a workforce optimization (WFO) solution to demonstrate that policies, procedures and management oversight of the new recording and monitoring rules are in place. Here’s what you’ll need to consider in a WFO solution:
- Continuous recording: This goes for all inbound and outbound voice and other electronic communications based on business rules. You need a WFO solution that will capture, search and retrieve calls, offer encryption for secure storage, and offer pause and resume capabilities.
- Desktop screen capture: This is an undetectable back-end process that records desktop screen activity during each customer interaction. Supervisors and managers can use this both in the contact center and back office to view customer interactions from beginning to end via synchronized screen and call recordings.
- Quality management monitoring: Identify and capture areas of non-compliance, while measuring how well employees are delivering services that align with customer experience expectations.
- eLearning and coaching tools: Bring employees fully up to speed on regulatory changes and any new requirements, as well as correct any non-compliance behaviors.
- Voice analytics: Proactively identify, measure and isolate areas of non-compliance by mining intelligence from large volumes of recorded calls.
- Workforce management: Schedule employee compliance training while ensuring you have enough support personnel with the right skills to serve customers.
The greatest threat to reputability, revenue and customer experience is the thought that your technology is “good enough” to meet current needs. Your ability to innovate and grow are hinged on technology that meets the next-gen needs of today, tomorrow and beyond—something that only 24% of companies say their workforce optimization and recording systems achieve.
To complete a thorough review of your current MiFID II processes, connect with Avaya. For a deeper dive into MiFID II (including a few WFO features not mentioned above) download the white paper MiFID II: What Does it Mean for Your Organization?