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The FCA is listening: Advisers challenge Mifid II plans to record client calls


The advice sector is pushing back against the FCA’s plans to require advisers to record telephone calls amid cost concerns and fears clients could withhold information.

In a Mifid II consultation paper published last week, the regulator proposes extending the recording requirement to all “Article 3” firms, which includes advice firms and corporate finance boutiques.

The FCA says it is open to suggestions for alternative approaches that offer the same protection as recording but cost less, particularly for smaller firms.

Under Mifid II, firms are required to record telephone conversations and electronic communications that relate to “the reception, transmission and execution of orders, or dealing on own account”. These recordings must be held for at least five years.

But advisers have questioned how recording calls will work in practice and what might constitute alternative approaches for smaller firms. Given complaints to the Financial Ombudsman Service can occur further down the line, the value of the five-year holding period has also been challenged.

Dual protection

In the consultation the regulator sets out why in its view call recording will protect advisers and consumers.

It says FOS data has shown that most complaints about investments centre on the conversations when investments are sold.

The FCA says: “Where those conversations take place by telephone, the existence of tapes will therefore provide a clear audit trail of the intention and understanding of the parties leading up to the conclusion of a transaction, particularly in cases when allegations of misselling arise.”

It says consumers will benefit from a “self-disciplining deterrent effect”, where advisers ensure best practice because they are being monitored.

“Requiring recording because it is convenient for the regulator is not in the spirit of respecting data and privacy rights”

The FCA admits that advisers’ recordings will help its own thematic review or “mystery shopping” work, as well as being another source of evi-dence for its enforcement division.

But Zurich UK life regulatory developments head Matthew Connell warns the regulator should not  put achieving its own objectives ahead of consumers’ privacy rights.

He says: “It is legitimate to require recording where there is a specific risk that is being addressed, like the risk of market abuse, but to require recording just because it is convenient for the regulator to dredge through large amounts of communication, that is not in the spirit of respecting people’s data rights and privacy rights.

“There needs to be a clearer case from the regulator about why the benefits outweigh the costs.”

The FCA admits advisers will incur equipment and ongoing compliance costs but says such charges have fallen in recent years. It says the cost of phone recording technology has fallen by a third since the FSA introduced the requirement to tape in 2008.

It adds data retention costs have also dropped since cloud storage was developed.

The regulator also notes it has chosen not to adopt the part of Mifid II that makes advisers record face-to-face interactions.

An FCA spokeswoman says: “Under the directive, firms must take a minute or a note of certain information during face-to-face meetings. The FCA would have to gold-plate Mifid II if it were to require taped recordings of meetings and we do not wish to gold-plate this provision.”


The practicalities

Advisers who already record phone calls say the practice has its merits but question the practicalities of recording a high volume of calls.

Investment Quorum chief executive Lee Robertson says his firm has recorded calls for several years because it is an investment management business as well as an adviser.

He says: “It is not massively burdensome but it comes at a cost so you always have to think about the proportionality. You need software, you need servers or a cloud-based solution.

“Then you have got the issues with reliability – what happens if a server goes down. We had a brief issue when we were bringing it in where it didn’t seem very reliable. All these issues impact on the working day.”

Robertson says there are gaps in the FCA proposals; for example, advisers will not have to record client meetings and potential issues with recording on mobile phones.

He says: “Many clients want to call on your mobile because they know you have always got it with you. We then call them back from a landline. That takes discipline and is not always possible.”

Thameside Financial Planning director Tom Kean says his firm records calls to protect against complaints. He says it helps to refer to the recording to check facts and figures, and on one occasion helped the business with a client accusation.

But Kean adds: “The companies required to record at the moment are big firms that place [deals] that need to be recorded for future reference. There are practicalities for a small firm recording every telephone conversation.


“The challenge is to record everything robustly when I might be in a different room on a different phone, having a chat with a client and thinking ‘this is now an advice event’, and having to change phones to my desk which has got the recorder.”

Personal Finance Society chief executive Keith Richards says while the changes might initially be seen by advisers as an extra regulatory burden they should create efficiencies for advisers and give extra protection around complaints.

Richards adds: “Advisers must be offered the support and information required to implement a system that suits their particular technological needs.

“They will also need assistance adapting their back office and compliance procedures in accordance with the new requirements.

“The FCA and advisers will also need to educate consumers, who may otherwise be sceptical about the need for the proposed changes. Some smaller advisers will be concerned about the impact on the personal nature of their brand, while some consumers may be inclined to withhold personal information as a result of their conversations being recorded.”

The FCA says it is open to suggestions about other approaches that give the same level of protection as recording but cost less, but is unclear on what these alternatives could look like.

Connell suggests to protect against market abuse, it could be enough for small firms to ensure the larger firms it places deals with stick to the recording requirement.

He says: “If a firm can demonstrate that the firm it places its orders with is taping, then perhaps that is an alternative, provided there is some kind of demonstration on the part of the smaller IFA the firms they deal with have those systems in place.

“There are other ways of recording things in a written form and playing back to customers, but that can also be a form of bureaucracy.

“Hopefully, if firms can produce a diagram of the buying and selling process and evidence that there is adequate recording going on up the line, then perhaps that could be an alternative.”

Fighting with the FOS

Richards questions whether the five-year timeframe for keeping recordings will be sufficient when it comes to complaints.

He says: “A brief analysis of FOS complaints data reveals a number of recently upheld consumer claims in respect of life and pensions relate to advice given more than five years earlier. This potentially undermines the seemingly arbitrary five-year period over which advisers would be required to retain their records.”

But Tisa technical policy director Jeffrey Mushens argues five years is too long for recordings to be kept.

He says: “The issue is around the logistics of having [the recording] in a searchable, readable form for a period of up to five years. Purely on a practical level, people move businesses, they move premises. The logistics of being able to search for them and keep them is problematic.”

Expert view: Chris Hannant


The FCA has just published its third consultation on the implementation of Mifid II. This is the paper that is most relevant to advisers and includes the proposal to extend the requirement for recording telephone conversations with clients.

As the FCA notes, the measures are intended to combat market abuse and make sense in the context of trading conditions, where timing is crucial to the outcome and you need to know who said what and when.

The proposals make less sense in an advisory context. The FCA seems to acknowledge this in saying it is open to an alternative approach to an Article 3 exempt firm if it delivers similar consumer protection.

The FCA makes the case that recording will help resolve complaints where what was said in conversation is disputed. I am aware some firms take this approach to protect themselves. However, following that logic, it would be appropriate to record all discussions with clients.

The existing requirement to put a suitability report in writing is the most appropriate consumer protection because it puts the recommendation in black and white. Most advisers will record any conversation with a client with a file note or email to the client, so an alternative might be an agreed contemporaneous note of the conversation.

The requirement is to record calls “of conversations and communications with all clients where these relate to/or intend to lead to the conclusion of a transaction, even where the transaction is not concluded”. So it only applies to conversations where advice is given and the consumer accepts it. In theory, if a firm never advised clients by telephone they would have nothing to record, but I imagine that would be a cumbersome and unfriendly way of working.

Finally, there is a further consideration. The suggestion coming from the Conservative party conference is we are heading for a “hard” Brexit. This would mean being outside the single market and, therefore, market harmonisation measures such as Mifid II. If this is the case, I am sure the European Commission would not pursue infraction proceedings against the UK for non-compliance. They take years to have effect in any event. So, the Government could choose to not apply further bureaucracy from Brussels.

Chris Hannant is director general at Apfa



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There are 10 comments at the moment, we would love to hear your opinion too.

  1. We have recorded telephone calls for many years. It is very simple and cost effective and I can’t see any reason why a firm wouldn’t want to record calls. I see it as part of the risk management process. We also record every face to face meeting. With digital recorders it is very easy and I have never had a client refuse it.

  2. We have recorded everything for last 3 years including FTF- there are loads of ways of doing it and it isn’t expensive at all- technology is clever and accessible- there isn’t any alternative that offers the same protection- I suspect this is just excuses as people feel uncomfortable doing it and they do have to set something up on all their phones?? If they use multiple ones- use a VOIP system and same one can often be set up on all gadgets

  3. Alasdair Sampson 6th October 2016 at 9:35 am

    How often have we read comments from IFAs that the FOS simply disbelieves what the IFA says in defence of a complaint and seems to prefer the account provided by the client suffering from selective amnesia?

    This is a simple method of retaining evidence for whatever complaint that comes your way. Why would you not do it?

    I had one case several years ago of an IFA whose UCIS promotions was the subject of a supervision meeting by the then FSA. Following receipt of the feedback letter, that as usual bore little resemblance to what the IFA recalled being discussed at the meeting, he had a heated telephone conversation with the FSA officer during which she admitted that she had got certain aspects of the supervision wrong. When I later challenged her on that later, surprise surprise, she denied ever having made that admission. The supervision proceed on the basis of a lie.

    There was no-one quite so surprised as my IFA client when he learned from his IT supplier that the shiny new telecoms system that had been installed just a couple of weeks before the supervision meeting also automatically recorded calls. He genuinely had not known that.

    Needless to say I had a field day when providing hard evidence to the FSA in Edinburgh that their officer was a liar.

    The outcome was a fresh supervision meeting re his UCIS promotion after which the FSA closed its file.

    The verbatim transcript of a conversation, as well the actual tone and emphasis of the spoken word, is very strong evidence that the FOS would not ignore.

    As my claims management business will shortly be regulated by the FCA, and as the MoJ’s recent consultation report on CMC’s regulation refers to call recording, I will certainly be getting that installed.

  4. “There needs to be a clearer case from the regulator about why the benefits outweigh the costs.” Yes indeed ~ a Cost:Benefits Analysis. But, as we know, although the regulator just loves to blow massive amounts of OPM commissioning external reviews/reports/ analyses/studies, call them what you will, it seems to be curiously reluctant to do so on something as fundamental as Cost:Benefits Analyses, the prime example of which was the FCA’s RDR. So, if it refused to commission one for something as major as its RDR, what hope can there be that it’ll commission one on this issue? Virtually none.

    I’ve never once, in all my time in this business, EVER had to deal with a dispute over who said what to whom and when. All that matters, when it comes right down to the bone, is what’s been written down.

    I appreciate that some advisers may like to make and keep aural recordings of conversations (as opposed to written summaries) but I imagine that the number of times they’ve actually had to retrieve those recordings to clarify/resolve a difference of recollection of what may have been said in a past phone conversation is vanishingly small. I may be wrong, of course, but I can speak only from personal experience.

    Is this requirement to record all client conversations anything more, really, than a very large (and possibly unreasonably costly) hammer to crack a very small nut?

  5. I am not sure about the majority of advisers out there, but personally I do not ever recall advising over the phone. The vast majority of my calls to clients (or vice versa) are simply to arrange appointments, so from a personal view point it is a total non event as I won’t be recording any if it is only a requirement for advice calls. It makes perfect sense to record calls were deals are done or advice (or even guidance) over the phone and I could fully understand them wanting adviser FTF meetings recorded but they don’t (for now). It appears to be yet another set of consequences of a one size fits all approach by the FCA, which they keep insisting does not work in the advice arena. If it is not appropriate in the advice space how can be appropriate to have a one size fits all approach to the regulation of the advice space?

    I am not being flippant here but I do have a question for those who currently record client meetings. “Because all is recorded do you produce a much shortened SL in which you refer to the recorded meeting for all the salient points, and include a copy of the recording for the client?

    One issue I would like the FCA AND FOS to put 100% clarification on regarding this new proposal and it is this. Which will they give more credence to in the event of a complaint landing with FOS within the 5 year time horizon? The recording or the SL (where it is appropriate)?

    If you omit something from the SL that was in the recording is that a big issue or small issue or a non event issue as you did tell/explain X Y or Z to the client and have evidence to demonstrate this fact. What about if there is something in the SL that you didn’t say at the meeting? The same question applies.

    The F-Pack need to have one of these being the most important topic to be relied upon and taking preference in complaint resolution and it should be the recording in my view if it is introduced. If not then it is definitely a total waste of time because we are then in exactly the same situation as we are now, only with another useless layer of bureaucratic crap to be added.

    Just a thought

    To quote Sir Humphrey Appleby “I foresee all sorts of unforeseen consequences with this policy if it is implemented”

  6. At this rate, the FCA will be insisting that all FA firms must pay for the installation of a permanent tap on their phone systems so that they [the FCA] can listen in to any conversation whenever they feel like it. It may sound far-fetched but we do seem to be heading in that direction.

    And the FCA certainly doesn’t like its own conversations being recorded, whether on the phone or in the office of an adviser firm. If given prior notice of this intent, all manner of threats and intimidation are swiftly dispensed. Clearly, dealing with the regulator in an open and cooperative manner is a one way street.

    Well done AS for exposing the FSA’s lies.

  7. Once again a heavy handed approach to deal with a minor potential issue that hardly ever arises. I also won’t be participating in recording anything unless forced to do so and if this does come in will request clients email or write in with questions or requirements which I will respond to in the same manner. Unfortunately this will duly increase time and duly costs for the client so what benefit exactly is being achieved here for anyone – unhappy clients duly go elsewhere if dissatisfied, all advice is documented anyway as a compliance requirement and justifies what is done so what is going to be any different !! This is yet again regulatory overkill
    which is loading even more cost on a strained industry already struggling to survive as it is against increasing obstacles and regulatory oppression – how about leaving us to do a good job for our clients in peace for a while without constantly sticking the knife in !!

  8. Some of the people on the initial article were critical of advisers that didnt see a need for it. Almost making out that they felt those that didnt want recording were dodgy. That was very unfair. Large firms working from a single office wont suffer much of a cost compared to small firms that use work-from-home advisers. You are going to need a system for each of their home phones, their own mobile phones and possibly an office phone as well. We discussed this last week when it first came up and we all said that most of the time, the phone was personal chat or casual chat with people to book an appointment or cover an admin issue. No-one actually giving advice over the phone. Completely pointless costs to cover something that rarely happens. If your model was phone based advice, then I would agree that they should be recorded. However, firms operating on face to face advice who do not have to record the meetings shouldnt be required to record phone calls where no advice is given.

  9. It seems an obvious choice, when you weight up the cost of a phone recording system versus the cost of an upheld complaint because you can’t disprove what the client is saying.

  10. I challenge FCA to prove that any significant number of IFA complaints have anything whatsoever to do with a Telephone call.
    If you look at the FOS publications there is not a mention of a disputed telephone call being party to a complaint.
    For Goodness sake, we already destroy Forests in producing paperwork to demonstrate suitability.
    This shows a contempt for the OVER regulated IFA.
    Its similar to the FSCS saying removing the Compensation cap will have no material difference to the FSCS Levy.
    Lazy Regulators, who are unaccountable and can put forward whatever they like without challenge or oversight.
    I am sick of it.

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