On 20 March 2020, ESMA announced a clarification of issues related to MiFID II telephone conversation recording requirements. ESMA's public statement acknowledges the specific challenges credit institutions performing MiFID investment services and MiFID investment firms (Investment Firms) face in these areas from the COVID-19 outbreak.
ESMA refers to its existing Q&As which permit Investment Firm staff to use mobile devices to undertake activities related to transactions when dealing on own account and providing client order services. This permission extends to personal devices as well as those provided to staff by the Investment Firm. Investment Firms are required to take all reasonable steps to prevent a person from making, sending or receiving relevant telephone conversations and electronic communications on devices which the Investment Firm is unable to record or copy.
MiFID II requires Investment Firms to establish, implement and maintain an effective policy on the recording of telephone conversations and electronic communications. The policy on use of mobile devices should cover the:
- requirement to retain data for a five year period
- prohibition on deleting records
- process for dealing with lost or stolen devices
- retention of devices when staff leave the employment of the Investment Firm
- frequency of transferring data from the device to the Investment Firm's own database
When telephone recording is not possible
Investment Firms must adopt alternative arrangements to ensure full compliance with the regulatory requirements. ESMA provides the example of using recordable electronic communications rather than telephone conversations. Investment Firms should assess their existing capabilities and the functionalities of their existing technology to assess if relevant conversations can be recorded by other means.
ESMA recognises that in these exceptional circumstances Investment Firms may not be able to record some voice communications. In such circumstances, Investment Firms are expected to consider alternatives steps that will mitigate the risks related to a lack of recording. It would be advisable, if such considerations are documented clearly and Investment Firms should proceed with the method which most fully address the risks arising when telephone conversations are not recorded.
ESMA advises that where calls are not recorded, clients should be notified of the impossibility of recording the call and that written minutes or notes will be made of the conversation. Investment Firms should also ensure that there is enhanced monitoring and ex-post review of affected orders and transactions.
Finally, Investment Firms are expected to deploy all possible efforts to ensure that the alternative measures remain temporary and that recording of all telephone conversations is restored as soon as possible.
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For further information, please contact Dario Dagostino, Kevin Allen or Patrick Brandt (Financial Regulation Partners) or Sinead Prunty (Financial Regulation Knowledge Lawyer).
