March 15 2016
With less than two years to go until the January 2018 implementation of MiFID II, many firms are still unprepared for the full impact of the new regulations. The sheer scale of complex technical challenges, combined with a widespread lack of engagement has left large numbers of firms without adequate compliance strategies in place. If these issues remain unaddressed, some firms could find themselves facing the real possibility of financial penalties come 2018.
However, it’s not all bad news. One contentious issue that had been causing both confusion and concern amongst affected firms has been clarified by the FCA: that there is no mandatory requirement to voice record face-to-face meetings with clients – but is voice recording of meetings such a bad idea? Let’s take a quick look at what the new rules dictate and the possible advantages that recording could offer.
What the Directive Tells Us
Article 16 (7)of the Directive states:
“…the content of relevant face-to-face conversations with a client could be recorded by using written minutes or notes. Such orders should be considered to be equivalent to orders received by telephone.”
Recital 57 expands further:
“Where minutes are taken of face-to-face conversations with clients, Member States should ensure that appropriate safeguards are in place to ensure that the client does not lose out as a result of the minutes inaccurately recording the communication between the parties. Such safeguards should not imply any assumption of liability by the client.”
If we break the above paragraphs down, we can understand the obligations step by step.
From Article 16 (7):
“…the content of relevant face-to-face conversations with a client could be recorded by using written minutes or notes.”
This makes it perfectly clear: firms do not have to voice record face-to-face conversations as written minutes or notes are acceptable.
“Such orders should be considered to be equivalent to orders received by telephone.”
Orders made face-to-face must be subject to the same rules as orders received via telephone. Records of such meetings must be made in a durable medium and subject to the same stringent compliance rules as voice and electronic communications.
Since email communications are already covered by the ‘electronic communications’ rules, then a regime where by minutes of meetings are typed up and emailed to a client would, in theory, meet the requirement.
Examining Recital 57:
“Where minutes are taken of face-to-face conversations with clients, Member States should ensure that appropriate safeguards are in place to ensure that the client does not lose out as a result of the minutes inaccurately recording the communication between the parties.”
This means that in order to protect the interests of the client, firms will need to have processes in place that ensure the accuracy of any minutes taken during face-to-face meetings. Investor protection is a key theme that runs throughout much of MiFID II and firms will be required to demonstrate a commitment to it across their business.
“Such safeguards should not imply any assumption of liability by the client.”
These processes should be entirely the responsibility of the firm or service provider. The client should not be assumed to be liable for accurately documenting face-to-face meetings in any way.
The clarification that MiFID II does not oblige firms to voice record face-to-face meetings has come as a relief to many. However, the Directive does require firms to document such meetings in a demonstrably accurate and durable format that must be able to withstand the same scrutiny as telephone and electronic communications. In addition, Weston believes that firms should also be considering how they will effectively document all channels of information presented to clients during face-to-face meetings; be that via written, spoken or visual media (PowerPoint presentations for example). With this in mind, the idea of recording face-to-face meetings starts to look less like a troublesome burden and more like a forward-thinking solution.
When adopted as part of a business-wide communications recording strategy, the benefits of recording face-to-face meetings using a system such as meeting capture could be considerable; all channels of communication with the client would be captured to provide an indisputable record of events. In addition, the format of the records would remain consistent with other communications channels across the business and could be quickly and easily shared with clients or legislative bodies without the need for transcription. This not only saves time, but reduces the risk of introducing subjectivity, errors and disputes. Furthermore, in an age of increasing legislation and investor wariness, it could prove to be highly advantageous for firms to be able to demonstrate a culture of openness and transparency that extends beyond the minimum requirements of regulation compliance.
So, in conclusion, although it is clear that MiFID II does not introduce a mandatory requirement to voice record face-to-face meetings, in the real world there is a strong case for recording - and it may even be a simpler approach after all.