The implementation of MiFID II is just around the corner. The date is set for January 3rd, 2018 and firms in the finance industry need to figure out how it will affect their business.
Our team at Verba is building solutions that help solve MiFID II compliance requirements.
MiFID II, replacing the first iteration of the regulations enacted in 2007 will change many aspects of the regulations. There are five key goals of MiFID II:
- Ensure financial products are traded on regulated venues
- Control HFT (High-Frequency Trading)
- Increase transparency of trading for customers and clients
- Limit speculation on commodities with expressed focus on agricultural products
- Protect investors through very strict organizational and conduct-of-business requirements
- In essence, while MiFID I aimed at creating a general common framework for the operations of financial firms, MiFID II is tasked with creating a regulated, transparent and accountable financial atmosphere within the EU.
Many of the changes will impact the handling of electronic communication records. Let’s look at some of the specifics and how Verba can help.
1. Voice is not enough
MiFID II, Article 16(7):
“Records shall include the recording of telephone conversations or electronic communications relating to, at least, transactions concluded when dealing on own account and the provision of client order services that relate to the reception, transmission, and execution of client orders.”
Basic recording of phone calls is no longer enough. You must capture all communications channels. Verba offers various recording modalities of Cisco and Skype for Business and other communication solutions. In a Verba archive, text, voice, video, screen sharing, file transfer and records of other modes of communication are found side-by-side. Together with our partners, we are also able to offer communication capture for other modes of communications.
2. Intent of transaction matters
MiFID II, Article 16(7) continued:
“Such telephone conversations and electronic communications shall also include those that are intended to result in transactions concluded when dealing on own account or in the provision of client order services that relate to the reception, transmission and execution of client orders, even if those conversations or communications do not result in the conclusion of such transactions or in the provision of client order services.”
In the first iteration of the policy, calls only had to be recorded when the trade was executed. The wording “intended to result” casts a much wider net. You have to be prepared to capture a lot more conversations. With a server-side, tamper-proof, high-performance recording solution like Verba, you can record all conversations regardless of the outcome. Using speech AI capabilities, you can build rules that help automatically sense and recognize intent.
3. Reasonable steps to record
MiFID II, Article 16(7) continued:
“… an investment firm shall take all reasonable steps to record relevant telephone conversations and electronic communications, made with, sent from or received by equipment provided by the investment firm to an employee or contractor or the use of which by an employee or contractor has been accepted or permitted by the investment firm.
An investment firm shall take all reasonable steps to prevent an employee or contractor from making, sending or receiving relevant telephone conversations and electronic communications on privately-owned equipment which the investment firm is unable to record or copy.”
“Reasonable steps” is the importnat phrase. The regulator will look at efforts, not necessarily the exact technical solution. While there is a lot of noise in the market regarding the archiving of various consumer chat apps, as a regulated firm, you might solve that problem with a simple mobile device management (MDM) solution (thus taking “reasonable steps to prevent”).
However, a significant issue remains, namely that investment firms still have to record both mobile calls and text messages, whilst providing efficient additional communication solutions to all “in-scope” employees. With Verba and through our partners you can record mobile traffic, reliably from the network. In cases where network-based recording is not available, mobile apps can also help solve this requirement. You can also use enterprise-grade communication apps like Cisco Jabber or Skype for Business. When deployed correctly, these tools will allow communications outside your firm on a wide range of networks, all recorded, captured and archived.
4. Notify clients
MiFID II, Article 16(7) continued:
“An investment firm shall notify new and existing clients that telephone communications or conversations between the investment firm and its clients that result or may result in transactions will be recorded.”
Sounds simple, but still complex in most communication environments. Voice announcements should work not only on inbound calls but also on outbound. Those should be present in conference calls. And what about notifications in chat messages? All these scenarios are covered by your Verba solution, where notification is an integrated capability. If you are using UC, you will be able to notify.
5. Electronic Communications
definition intentionally left blank
The Directive does not clearly define “electronic communication”, however, the lawmakers make a deliberate attempt to ensure that evolving and developing future technologies are also regulated in MiFID II.
We have good news, Verba future-proofs your UC compliance. We have solved the electronic communication problem for Cisco and Skype for Business UC, no matter what modalities you enable. We expand our portfolio with the latest UC service providers, latest mobile networks and other cloud communication services, on a regular basis.
6. Durable medium
MiFID II, Article 4(63):
“‘durable medium’ means any instrument which: (a) enables a client to store information addressed personally to that client in a way accessible for future reference and for a period of time adequate for the purposes of the information; and (b) allows the unchanged reproduction of the information stored”
Your Verba solution can encrypt and digitally sign conversations at the place of recording and directly store them in a compliant storage. Our open framework integrates with a range of WORM (Write Once Read Many) data stores, that further ensure your recorded conversations will not be manipulated, tampered with or deleted. The built-in compliance export and legal hold (the ability to suspend deletion policies on specific conversations) makes sure you can efficiently comply with regulatory requests.
7. Requests by competent authorities
Member States’ competent authorities can request information from an investment firm relating to any set of transactions. These requests must be fulfilled and executed in a timely manner. Speech AI and rule-based automated analytics will accelerate your production of structured information. There is no silver bullet for this scenario, but Verba goes that extra mile to help you produce data at a moment’s notice. What took weeks for analysts to compile can be done in a matter of days or even hours.
What is your next step?
Verba helps you achieve compliance with electronic communication requirements in MiFID II. In this article, we have not even touched upon real-time compliance capabilities, trade reconstruction and other means that help you comply with requirements of working proactively.
With Verba you are not in a hurry. Take your time, find the best solution, deploying your Verba system and getting it up and running will be surprisingly quick. We have already done it at more than 1500 customer sites.
Get in touch today, and our team helps you build a Verba solution to comply with MiFID II.
Disclaimer: The information contained below is for informational purposes only and should not be considered legal advice. Furthermore, the information contained below may not reflect the most current legal developments. You should not act upon this information without consulting regulatory advisors or legal counsel.