MiFID II: Are You Ready?
February 18, 2016
One of the most underrated aspects of the upcoming Markets in Financial Instruments Directive (MiFID II) is the requirement for voice recording. The regulation, set to take effect January 3, 2018, states that if there is an intention to execute a trade, the entire dialogue and/or discussion must be recorded.
For many EU-based firms, this means significant steps must be made to ensure their trader voice technology is compliant; however, the transition process is proving more difficult than imagined.
This post references two articles in which Cloud9 President, Greg Kenepp shared his thoughts about the upcoming regulations as well as the solution needed to ensure compliance. Click to access the articles from MarketsMedia and Financial Technologies Forum.
Despite the postponement of MiFID II to January 2018, a recent study by Sapient Global Markets has found that only 10% of firms are claiming that they are “very ready” with solutions that ensure compliance with the new regulations. Although originally extended to allow businesses to implement the necessary technical improvements, experts are worried that the extra time might cause complacency.
Cian O’ Braonain, Director of the Regulatory Reporting Practice at Sapient, says “It’s inevitable that whenever the word ‘delay’ or ‘postponement’ is used there’s a natural temptation to ease off and become complacent because they now have 24 months to complete the project. That’s incredibly dangerous because The extra time should be used to understand the complexity, the IT requirements and also for testing and re-testing to ensure reporting completeness and accuracy.”
O’Braonain also warned of the danger that firms might not seek the most efficient solutions that can keep pace with the depth and breadth of MiFID II, let alone refinements to other regulations such as European Market Infrastructure Regulation. Even in the US, a solution must be able to adapt to changes in regulations such as the Dodd-Frank Act, which also contains mandates about when and what discussions must be recorded.
As President of Cloud9, Greg Kenepp, agreed recently, “Banks will need to work diligently over the next two years to ensure that their call recording practices go above and beyond what is required by MiFID II.”
Legacy trader voice options, like turrets, are a significant obstacle to this process, largely due to their inability to record all calls and messages as well as the inability to identify individuals on calls. This failure to reconstruct accurate conversations has companies seeking alternative technology.
The silver bullet solution needs to be able to cover the regulatory demands of MiFID, be adaptable to change in a number of trading compliance regulations, as well as meet the demand by traders for a system that supports both voice and digital communication.
The Cloud9 Solution
We have been incredibly proactive in meeting the regulations outlined in MiFID II, with call recording and retention already built into the application. Other features, such as rapid implementation and adaptability ensure that our Cloud9 users will be prepared for any and all compliance adjustments.
Current MiFID II rules require that 180 days of call and communications data to be retained by financial institutions, but it will eventually specify that firms must meet a mandatory requirement of five years of date recordings. Cloud9 gives firms the ability to define their own retention periods, and to download their own recordings. Compared to the difficult reconstruction of discussions using turrets, with Cloud9 compliance officers can easily identify which participants were involved with each trade.
In addition, these recordings are securely stored behind several layers of encryption on Amazon Web Services, keeping them from being tampered with or erased.
Since our application is hosted in the cloud, the implementation process is far less painful than that of a traditional telecom-based solution, which can take anywhere from a few weeks to a few months. Within minutes, a user can be connected to the Cloud9 Trader application, begin building out their contact list using the expansive network, and communicate with them.
The lack of any physical hardware is key to the efficient and effective implementation of a compliant trade communication system.
Another advantage of having a cloud-based solution is that any system updates can easily be rolled out across the entire user-base. When new regulations pass and an update is needed, companies do not have to worry about replacing an entire hardware infrastructure, they can simply download an updated version of Cloud9.
Do you need to prepare your company for compliance with MiFID II? Find out more about Cloud9 here.