MiFID II Requirements

MIFID-Recorder

MiFID II compliant telephone recording!

MiFID II Requirements / MIFID II – Taping


Ten years after passing the “Markets in Financial Instruments Directive” (MiFID) to regulate financial markets in April 2004, European policymakers implemented a completely updated second set of directives, known as MiFID II, on 15 May 2014.

The new directive establishes a regulatory framework for firms providing investment services in Europe and it also impacts trade regulations of the European financial markets.
In addition, the directive augments security and reliability by creating more transparency for government regulators and contributes to the harmonisation efforts in Europe. It bolsters consumer protection and is designed to heighten the transparency and integrity of the financial marketplace.

MiFID II has entered into force on 3 January 2018. The requirements of MiFID II are extensive. The corresponding organisational and operational compliance activities to be implemented involve various operational divisions.

MiFID II stipulates new centralised organization- and conduct-related standards which compel investment firms to comply with new record keeping requirements. These requirements will not only have an impact on communications with clients but also on internal operations and structures. This includes new requirements for recording telephone conversations, for which no transitional provisions have been stipulated.

The recording of telephone conversations (“taping”) is only one of many major aspects of MiFID II.

The aim of taping calls is to increase safety standards in the marketplace, to provide transparency in detecting abuse and thereby offering investors more comprehensive protection.

Companies in the financial instruments market are required to record all telephone conversations in connection with financial market business.

These companies comprise, for example,

Investment firms: An investment firm is defined as a legal entity offering one or more investment services to third parties and/or brokering numerous investment deals.

This includes investment firm activities, such as
– Acquisition Services
– Investment Brokerage
– Investment Advice
– Financial Portfolio Management (Asset Management)

Investment companies acting as liability umbrellas are also obligated to fulfil the requirements for their tied agents.

Investment brokers with a license pursuant to section 34f of the German Industrial Code [Gewerbeordnung] (“34f agents”): Even if investment agents pursuant to section 34f of the German Industrial Code may still be allowed to advise and broker investment funds, they need to meet specific requirements. MiFID II stipulates documentation and recording of phone calls for them as well.

 

Conclusion
The new recording requirements and corresponding organisational adjustments should not be underestimated. Instead they should be dealt with early on, especially considering the fact that a breach of the obligations may result in substantial fines.

MiFID II compliant tapings must meet the following requirements:

  • “On demand” or “automatic” recording
  • Storage for five years (seven years on demand)
  • Encrypted data transfer
  • Redundant data storage
  • Protection of recordings from tampering/alteration
  • Ability to identify subsequent changes despite security measurements taken
  • Fast retrieval and allocation of tapes
  • Ability to hand over recordings to clients and authorities in a timely manner

 

Outsourcing of important operational functions
According to the ESMA guidelines, usage of a taping service via the MiFID-Recorder constitutes the outsourcing of important operational functions.
Therefore, also the inspection and auditing rights of the responsible authorities vis-à-vis the service providers must be regulated.
The license agreement for the MiFID-Recorder takes this important aspect into account, thus providing legal certainty especially during an audit.


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