To record, or not to record – that is the question on the lips of every business in the financial services sector ahead of the introduction of new regulations next year.
Ever since it was announced that the revised Markets in Financial Instruments Directive (known as MiFID II) would include requirements for more stringent record keeping for the sale of finance products, the UK’s Financial Conduct Authority (FCA) has been in a tizz over whether to recommend that providers record all relevant telephone transactions.
MiFID is a piece of EU legislation which regulates the market in shares, bonds, collective investment schemes and derivatives across Europe. Any UK business wishing to trade in such products has to be authorised to do so by the FCA, based on its ability to comply with MiFID rules.
The revised legislation, which comes into force in January 2018, is partly intended to improve transparency in the market, and therefore offer better protections to investors. One of the key proposals is to enforce a strict record-keeping regime on financial advisers and corporate providers, to make sure there are clear records of every transaction available for scrutiny.
For the record
In its original interpretation of the regulations, the FCA said that it would require every firm to record telephone calls in which the sale of financial instruments was discussed, or in which actual transactions took place.
However, following consultation and forthright lobbying from the industry, in April the FCA softened its approach. It agreed that the requirement to record, log and store every single call relating to financial instruments would be a massive burden for smaller firms, and agreed that detailed note taking from calls would be acceptable.
The FCA interpretation matters greatly to firms in the financial sector, as it sets the terms on which licenses to trade in financial instruments are issued. So although smaller firms will be spared the need to adopt call recording by January 2018, any firm which can be classified as a ‘retail financial adviser’ will not be. For larger firms, call recording will be a condition of retaining a license to trade in financial instruments.
Data protection clash
The issue of using call recording as a means of staying compliant with MiFID II is that it pulls in the opposite direction to other regulations on the recording of telephone calls. Later in 2018, another piece of EU legislation, the GDPR, will also come into force. Replacing the Data Protection Act (DPA), the GDPR will impose much tougher rules on the protection of sensitive data captured by any means or recording, with punitive penalties for any breaches.
By strengthening the rights of individuals to choose not to have data captured by call recording and other means, the GDPR conflicts with what the FCA interpretation of MiFID II would have firms do. Clearly, recording any kind of financial conversation has a high risk of capturing sensitive private information, which leaves financial services providers between a rock and a hard place as they then have to ensure they protect that data adequately.
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