At the end of September 2016, the Financial Conduct Authority (FCA) published its third consultation paper on its plans for implementing the European Union’s Markets in Financial Instruments Directive (MiFID II).
Perhaps the most eye-catching part of the consultation paper is a proposal to require firms to record telephone conversations with clients. This requirement could extend to most advisory firms, although the FCA says it will consider alternative approaches that could be used by the very smallest firms. Previous suggestions that the Directive would require firms to record face-to-face client meetings have proved to be unfounded.
The consultation paper reads:
“We think taping conversations between firms and their clients is likely to be an effective way of advancing our consumer protection objective.”
For example, although it has been widely reported that the rationale for recording calls was to combat market abuse, and market abuse is not one of the biggest issues with financial advisory firms, the records of these calls could have an important role to play when the firm and/or the Financial Ombudsman Service consider client complaints.
Firms should expect to have to record calls that relate to “the reception, transmission and execution of orders, or dealing on own account,” and to maintain these recordings for five years.
Under the proposals firms should also expect tougher rules on inducements, but may also see the introduction of a less onerous definition of independent advice.
Some of the other significant proposals involve changes to the authorisation process. For example:
• The FCA will require details of an individual’s 10-year employment history, as opposed to the current five years
• Persons who have committed a criminal offence may need to provide an official certificate of conviction
• Applicants will be asked to provide information regarding the length of time they will devote to the performance of their function
The consultation closes on January 4 2017 and MiFID II will come into force on January 3 2018. The FCA expects to publish a fourth consultation paper on the subject later this year.
Firms should expect the MiFID II implementation process to continue at full speed, in spite of the Brexit vote. The FCA was actually one of the main drivers in formulating this Directive, so clearly believes that these measures need to be implemented in the UK and elsewhere.
FCA chief executive Andrew Bailey said:
“The changes to the rules we are proposing today reflect key themes that we have worked on in both retail and wholesale markets over recent years to promote competition and market integrity.
“As we said in our statement following the EU referendum result, firms must continue to abide by their obligations under UK law including those derived from EU law. They must continue with implementation plans for legislation that is still to come into effect, of which MiFID II is one such example.”
Specifically regarding the requirement to record calls, FCA policy, strategy and competition director David Geale said:
“We believe that the taping of telephone calls need not be onerous or expensive. Technology exists to enable advisers to record and store calls easily and affordably, we therefore believe it is proportionate to require firms to tape calls.
“Some industry respondents to earlier discussions raised concerns about the cost and practical implications for small Article 3 financial adviser firms. Our implementing approach for these firms remains open and we welcome alternative proposals that meet an analogous outcome to taping.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.