As this topic was of high interest to firms when the FCA first published final rules on the topic, we published an article in August 2017 explaining what it meant for affected firms. You can read that article here but the main points are replicated below, together with some important updates on points that we have confirmed with the FCA since our original article.

Rules applying to different types of firm

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 applied a degree of flexibility in the rules as they apply to RFAs. That flexibility takes 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. 

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.

Other MiFID Exempt firms

Chapter 19 specifically refers to the Article 3 exemption. We have subsequently confirmed with the FCA that the ‘at least analogous option is not available for Article 2 exempt firms.

CAD Exempt and BIPRU firms – an update

The taping rules apply to CAD Exempt and BIPRU firms. 

However, we have confirmed with the FCA that, if a CAD Exempt firm (or any other to which the taping rules apply) confirms to clients – for example as part of its terms of business – that no telephoned orders will be accepted, the taping rules won’t be applicable. 

Nonetheless, firms considering taking this route must bear in mind that orders may be placed by clients through other channels, and such communications must be made in a durable medium such as mails, faxes, emails or documentation of client orders made at meetings. In particular, the content of relevant face-to-face conversations with a client may be recorded by using written minutes or notes. All such orders will be considered equivalent to orders received by telephone.