MiFID II introduced obligations to record telephone conversations and any electronic communications that are intended to lead to a transaction. Records must be kept for at least five years.
The Covid-19 pandemic, which began in 2020, saw the majority of AFME member firms move towards a predominantly home-based model of remote working. Firms also saw a significant increase in their use of electronic communications and videoconferencing tools; for providing training and onboarding of new staff, as well as for communicating with employees and certain clients.
European regulators acknowledged the disruptive effects of Covid-19 and introduced measures to alleviate some regulatory obligations. In particular, ESMA recognised that, considering the exceptional circumstances resulting from the Covid-19 outbreak and despite steps taken by firms, the recording of relevant conversations required by MiFID may be impracticable in some scenarios.
However, many also maintained that firms should continue to meet regulatory requirements for the recording of telephone conversations or electronic communications. Notably, Julia Hoggett, FCA Director of Market Oversight, clarified in her speech ‘Market abuse in a time of coronavirus’ that the FCA expects that, going forward, office and working from home arrangements should be equivalent.
Firms are expected to update their policies, refresh training and issue reminders on firms’ policies. Firms must also ensure adequate oversight and surveillance of their firms use of electronic communications and identify and mitigate any new risks the new remote working environment may create. Regulators are clear that use of privately owned devices where recording is not possible, should be prevented. Firms must formally approve the use of new communication channels ensuring that controls are in place to prevent market abuse and protect the firm’s data.
With this in mind, members of AFME’s Compliance Issues working group worked with Latham & Watkins to produce this key industry considerations paper. The paper focuses on the legal and regulatory framework, identifies the risks that firms are facing – including the impact of remote and hybrid working, which was amplified as a result of Covid 19 - and provides examples of good practice to manage and mitigate those risks. It also provides recommendations for industry and regulators in adapting to the changing environment, be that hybrid working or in embracing innovation and new technology.
The paper is also intended to be used within firms to support discussions between legal, compliance, surveillance, and board level committees, to help firms to understand, and potentially harmonise, the industry’s approaches towards mobile devices and e-comms. The paper will also be used to support discussions with European regulators.
Please note that this Paper is intended for general informational purposes only, and does not provide, and does not constitute, investment, tax, regulatory, business or legal advice to any individual or entity.