In July 2017, the FCA published the second and what is expected to be the final Policy Statement on MiFID II implementation. The paper includes final Handbook text and is an important document that has a wide-ranging impact. It is essential reading for all investment firms.
This article relates only to chapter 19 of the paper (page 120 onwards) where the FCA has clarified, mostly, the position regarding recording of telephone conversations, referred to as ‘taping’. This requirement, like all other MiFID II rules is effective 3 January 2018.
There has been significant speculation around the requirement for firms to ‘tape’ telephone calls, especially whether and how it should apply to different sizes of financial adviser firms. For those firms, the key decision likely to be of most interest is that all Retail Financial Advisers (RFAs) that are an ‘Article 3 Exempt MiFID Firm’ will need to comply with the requirements to record telephone conversations. However, the FCA has reflected the feedback it received to its earlier consultation around taping and has confirmed, since the primary way these firms provide advice is face-to-face, and because they make few relevant telephone calls in this respect, that flexibility should be provided in the rules as they apply to RFAs. That flexibility will take the form of an option to adhere to an ‘at least analogous’ process instead of 'taping'. The options for RFAs are -
- taping relevant conversations; or
- making a written note of them.
The written note taken must include, as a minimum -
- the date and time of the meeting;
- the location of the meeting;
- the identity of the attendees;
- the initiator of the meeting; and
- relevant information about the client order including the price, volume, type of order and when it shall be transmitted or executed.
The FCA also expects the note to "capture any substantive points raised in the relevant conversation that provide material context and colour to the decision taken by the client. In other words, anything communicated from either the client or the adviser that could influence the client’s decision should be captured. Good practice for firms would include sharing the notes made of relevant phone conversations with clients on a regular basis in order to ensure their accuracy".
Firms should note paragraph 19.40 of the paper, which aims to clarify what a ‘relevant’ telephone conversation is. The definition is complicated but is fundamentally conversations where advice is given that leads to or is clearly intended to lead to an ‘order’. Care is needed here however, and ATEB would deem this to include any advice or recommendation scenario or circumstances that could lead to or have a bearing on advice or recommendations to/from the client.
Other MiFID Exempt firms
Chapter 19 specifically refers to the Article 3 exemption. There are other firms, for example, Article 2, Article 8, Exempt CAD and BIPRU firms, that have not been specifically addressed by chapter 19. We will be seeking clarification in this respect from the FCA.
If the taping option is adopted ...
... firms are required to have processes in place to ensure that staff do not undertake relevant telephone calls on personal telephones or mobiles that are not covered by the firm's recording process.
While providing flexibility in the way that RFAs can meet the taping requirement, the FCA has made clear that it believes telephone recording has benefits. Firms should therefore consider the applicability and benefits of implementing a taping system. Some firms already have relevant systems in place.
The alternative requirement to make notes of relevant telephone calls will further strengthen audit trails.
However, as advisers should be making file notes of all client conversations now, whether by telephone or face-to -face, the file note option should be no great imposition on firms. Indeed, a policy that requires notes of ALL calls removes any risk that a call that should be recorded is missed. There is just a need to make sure that notes are taken and that they meet the required standard.
Action Required By You
- Ensure you read chapter 19 of the policy statement;
- Consider the benefits of implementing a taping regime;
- Otherwise, review your current note taking procedure to ensure that it meets the ‘at least analogous’ requirements;
- Ensure that all staff are aware of the firm's policy and procedure for recording telephone calls and face-to-face meetings with clients;
- ATEB clients should speak with their account manager as necessary; otherwise contact ATEB here to find out how we can help.