MiFID II is part of the EU's revised Markets in Financial Instruments Directive impacting any organization providing financial advice leading to trade or investment throughout Europe. The UK is still obliged to comply with the changes, despite Brexit looming on the horizon. MiFID II comes as part of the reaction to the previous 2008 financial crisis aiming to provide investors with greater protection. It's designed to restore investors confidence, increase transparency and standardise regulatory procedures.
Previous best practises have now become explicit requirements, for example as of January 3rd when MiFID II goes live, anyone involved in the advice chain, including and not limited to mobile phone conversations, must be recorded and kept for a minimum of five years (up to 7 on request). Organizations will also have to prove the recorded calls have been periodically reviewed with documented and implemented policies and procedures. Furthermore, organizations are required to have a single appointed officer responsible for protecting the interests of clients from within.
What impact could MiFID II have?
Consequences of non-compliance extend to both financial sanctions and reputation risk.
Financially, non-compliance exposes financial institutions to sanctions of up to £4.6 million or €5 million, or 10% of annual turnover. Unfortunately, further administrative fines can also be imposed exceeding the maximum sanction amount. These can potentially extend fines to twice the benefit received from the trade or investment in question, resulting in significant sanctions being levied.
The Price of Brand Reputation
Financial institutions have spent a lot of resources building brand reputation bridges in recent years following rules being broken, which resulted in the economic crisis. While it's difficult to put a specific number on how much the negative impact a breach in compliance will cost your brand reputation, it is a black mark financial institutions will not want rearing its head. Misdemeanors can quickly serve as reminders to rule breaking ghosts of the past, and this can accelerate brand damage.
Transparency obligations require institutions to declare instances of non-compliance, so it is certainly worth considering the risks non-compliance exposes your organization's brand to.
So, what do you need to consider in order to comply with MiFID II?
- Advice Chain: how and who ensures calls are being recorded and monitored.
- Call Verification: what steps are needed to track call quality, consider call availability and integrity.
- Troubleshooting: what happens in the case of call recording failures? How should this be managed? And who needs to be alerted at what stage?
How can IR help?
Using innovative patent pending technology, Prognosis Call Recording Assurance verifies every call required to be recorded for legislation and regulatory purposes, is actually recorded. It ensures financial or trading based businesses are compliant with call recording regulations and mitigates reputational risk. Through Media Integrity it checks whether the media file contains audible content providing your organization with full visibility of call recording performance and sending alerts if anything isn't performing as it should.