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FCA loses fight on Mifid II call recording

The Financial Conduct Authority (FCA) has had to admit defeat in its fight against a call-recording requirement of the proposed Market in Financial Instruments Directive II (MiFID II), its Mifid coordinator has said. 02 Jul 2015

Under Mifid II rules, which are currently under discussion, anyone making a call in which they recommend products or aim to make a 'transaction' will have to record that call and save the recording for five years.

This week, FCA Mifid coordinator Stephen Hanks told a Tax Incentivised Savings Association meeting that the FCA had been against this, but had "lost the debate", the FT Adviser reported. The FCA told Out-Law.com that the comments attributed to Hanks by the FT Adviser are correct.

This requirement “does not exist in our current domestic framework for those Article 3 firms that are retail [independent financial advisors] and boutique corporate broking firms”, the FCA said in a discussion paper (52-page / 472KB PDF) about MIFID II in March.

However, Hanks said, “anyone caught by Mifid will be subject to these fixed rules, whereby five years of recordings must be kept.”

The FCA had argued that firms subject to the Mifid II rules should only be required to retain call records for six months, but "few other member states were on board", Hanks said.

The Association of Professional Financial Advisors (APFA) has also called for "common sense" on call recording.

"The Directive's aims are to counter market abuse and provide a record for consumers. For equivalent measures for advice, market abuse is irrelevant and the suitability report provides more than adequate records of advisers' recommendations," APFA said.

Financial regulation expert David Heffron of Pinsent Masons, the law firm behind Out-Law.com, said: "This does not come as a real surprise but the impact for smaller firms could be significant. Certainly, it's yet another thing for them to deal with. The argument that there was no customer benefit bearing in mind existing suitability requirements certainly had some force but the FCA’s hands are tied, unfortunately."

MiFID II is scheduled to take effect from 3 January 2017, although Hanks said that there could be a delay in its implementation.

Once in force MiFID II will revise and update the existing Markets in Financial Instruments Directive, which came into force on 1 November 2007 with the aim of creating a harmonised regulatory regime for investment services across the European Economic Area (EEA).

The revised MiFID package was adopted by the Commission in October 2011, partly in response to the financial crisis.

The new framework is designed to take into account developments in the trading environment since the original directive came into force, but also covers a broad range of investments and widens the scope of investment services needing authorisation from national regulators.