The FCA has fleshed out what it expects from advisers adopting new recording requirements under the EU’s Mifid II rules.
In a 524-page policy statement today, the FCA has stuck to its position that financial advisers would not have to tape face-to-face sessions, but would have to either tape telephone calls or provide an “analogous” written note of them.
Mifid II requires firms to record telephone conversations and electronic communications that relate to “the reception, transmission and execution of orders, or dealing on own account”.
The FCA laid out what information would be required as a minimum under the EU rules.
- the date and time of the meeting,
- the location of the meeting,
- the identity of the attendees,
- the initiator of the meeting,
- relevant information about the client order including the price, volume, type of order and when it shall be transmitted or executed
However, it says that when noting this information as opposed to recording the call, just writing that information would not meet the same consumer protection standard.
The FCA says that in order to meet this, firms should “capture all the main points of the full conversation that are relevant to the order.”
The regulator says: “We expect 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.”
The FCA clarifies that cases where clients say they do not want to proceed with a particular order also need to be recorded or taken note of, but does not require advice to be recorded unless the discussion “leads to or is clearly intended…to lead to a subsequent ‘order’ from the client.”
Despite some trade bodies fighting against the plans, the FCA remains committed to recording being needed.
It says: “We do not agree that the cost of the proposals would be as significant as has been suggested by some industry respondents. This is because the alternative analyses that were submitted typically took more expansive assumptions about the cost of storing phone records and the number of telephone lines that would need to be taped.
“We do not agree that the number of published Financial Ombudsman Service cases per year alone is a good indicator of the likely benefits that taping would bring.”
Independence and inducements
Also in the paper, the FCA confirms it will adopt the Mifid II standard for independence.
The FCA’s current standard, that independence requires a comprehensive and fair analysis of the relevant market and be unbiased and unrestricted, will be superseded by a “sufficiently diverse” look at the market, with some retail investment products excluded.
However, the FCA says there is unlikely to be any widespread, significant implications from the change, though some IFAs may narrow the scope of their advice while remaining independent.
Mifid II bans inducements for independent advice, and the FCA has confirmed it will extend this to restricted advice to retail clients. It stopped short of extending this to professional clients however.