MiFID II – Telephone recording update

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.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

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.
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About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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