MiFID II Call Recording – The winners & losers

Posted on Posted in Virtual CTO

Looking at the FCA final policy statement on MiFID II it seems that the call recording requirements have some definite winners and losers.

At the peak of the winners are Private Equity companies who pretty much don’t have to call record anything .

“This means that for non-MiFID firms also subject to the regime, where they undertake relevant transactions in certain securities (eg in the case of many private equity transactions), they will be captured by the requirement to tape where they may not currently be. We accept that the justification for taping these conversations on the grounds of preventing market abuse or raising conduct standards is weaker than for other extensions to the taping regime and may not be appropriate. We have therefore adjusted our scope to remove financial instruments not linked to trading on a trading venue from the scope of instruments required to tape by nonMiFID firms.”

Closely followed by Corporate Finance

“[…] we will not extend the MiFID II taping regime to capture all aspects of corporate finance business; but communications occurring during corporate finance business would be in-scope of the taping requirement insofar as they are automatically captured by MIFID II […]”

Good lobbying there for the both of them!

For Portfolio Managers the news is bad

“We consider that there is a sufficient gap in records kept to justify removing the exemption for discretionary investment managers. Where the exemption is used, we have found that it has been very difficult to access the relevant tapes from the sell-side counterparts, given that orders may be placed with multiple brokers across different venues. Additionally, our proposal will ensure that the costs of supporting FCA supervision and investigation are met by those who are often the subject of our oversight and investigations, rather than counterparties.”

Also AIF‘s get dragged into the net

“The activity of managing an AIF is defined in relation to the function of portfolio management in AIFMD. This means that the drafting relates to the performance of the particular function (ie when DIMs are actually undertaking portfolio management) rather than a more general understanding of what ‘managing’ an AIF entails.”

The biggest losers are RFA‘s.  Especially the small firms who are part of a network

“We [the FCA] do not agree that since these large firms are often comprised of networks of appointed representatives with one central principal, they should be considered as many small firms.”

“The AR-principal model centralises the compliance and support functions for the ARs to operate, and so the taping policy would fall within the remit of the principal. It may be the case that ARs currently operate different telephony systems, but this does not mean that the AR should be considered a separate entity for which it would be disproportionate to apply taping. Economies of scale will exist due to the centralised compliance function. “

There is a concept of firms that only make a few relevant telephone calls, and instead impart the majority of their advice in a face-to face capacity, the adviser is able to take contemporaneous client notes in lieu of call recording. 

“The information to be recorded includes at least (i) the date and time of the meeting, (ii) the location of the meeting, (iii) the identity of the attendees, (iv) the initiator of the meetings, and (v) relevant information about the client order including the price, volume, type of order and when it shall be transmitted or executed. [..] A note based just on the minimum details listed above would not provide an analogous outcome to taping telephone conversations. This is because it does not provide the same degree of consumer protection. We are therefore including further guidance in the rules that, in addition to the above details, the note should capture all the main points of the full conversation that are relevant to the order.”

“The rule would not, however, allow a call-by-call choice on whether to record or take a note of these conversations”