Some significant changes may lie ahead for the UK’s financial advisers as a result of the impending introduction of the European Union’s Markets in Financial Instruments Directive (MifID) II.

The most significant change could be a requirement for advisory firms to record all telephone calls with clients. Face-to-face client interviews may also need to be recorded. This could prove an extremely onerous requirement for some firms, especially those where the advisers operate remotely and not from the principal place of business.

MiFID II proposes requiring firms to record all conversations that involve client orders (instructions to effect a contract), but as legal experts have pointed out, in practice this means recording all conversations as the firm cannot know in advance if the conversation will involve a client order.

It has been speculated that a medium sized advisory firm could need to pay £2,500 to comply with these requirements, which is unlikely to be welcomed by firms already seeing significant rises in the costs of regulation.

The head of one of the main adviser trade associations suggested the UK regulator, the Financial Conduct Authority (FCA), was mis-interpreting the Directive. Chris Hannant, director general of the Association of Professional Financial Advisers, said:

“This aspect of MiFID II is aimed at monitoring firms like stockbrokers to prevent market abuse. It is not about investment advice and the FCA is going over the top by gold plating the rules. Firms need to keep a record of the advice they have given but to suggest a blanket requirement to record all conversations is not what MiFID II intended.”

The proposals may be designed to combat market abuse, but if recordings of client conversations are available, it is inconceivable that they would not also be used when assessing client complaints. So the Directive could, by accident, make it easier for firms to defend complaints.

However, it is possible that MiFID II could lead to a less onerous definition of independent advice being introduced. The FCA has already issued a discussion paper on some of the MiFID II proposals, including the independence definition. The UK regulator will then consult on required rule changes in December 2015, and confirm these new rules by July 2016, ahead of the introduction of MiFID on January 3 2017.

Besides call recording and independence, the discussion paper covers issues such as remuneration, inducements and cost disclosure.

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.