4 compliance steps for advisers to take now ahead of MiFID II
There are four key compliance actions adviser firms need to take in advance of MiFID II, says Yasmin Zarabi, vice president of legal and compliance, Hearsay Social
The European Commission’s updated rules for Markets in Financial Instruments Directive (MiFID II) is expected to have significant and broad implications on the way financial services firms across all 28 EU member states operate and enforce governance.
While MiFID rules have been in place in the UK since 2007, the updated MiFID II is currently scheduled to take effect on 3 January 2018. Although the effective date for enforcement isn’t for another year and a half, firms need to prepare now to be ready to comply on time, especially given that many of the changes will impact a wide range of functions across the enterprise, from client services to internal training to IT.
The revised MiFID II places a strong emphasis on improving investor protections by introducing more stringent measures for client communications, disclosures and transparency requirements.
As a result, there will be a greater focus and scrutiny on alignment of product and customer profiles, and ensuring compliance controls are in place – especially as they pertain to financial advisers’ digital communications with clients and prospects.
Here are four compliance actions that firms must take now in advance of the Directive:
1. Update employee policy and training
Under Articles 16 and 45 of the Directive, firms must provide adequate staff training so employees can understand the rules and also maintain an audit trail of the controls and processes that address the regulation. The policy and training team should draw members from legal, compliance, IT, sales, marketing and other teams as appropriate to explain the distinctions between MiFID and MiFID II for their firm.
2. Establish proper content approval processes
Articles 13 and 24 require that a firm’s digital marketing content be fair, clear and not misleading. It’s strongly recommended that firms have technology in place to assure that their advisers are sharing online content that has first been vetted by the firm’s compliance and supervision departments, before sharing that content with clients. Additionally, Article 25 requires firms and advisers to ensure the “suitability” of their client’s needs in order to make appropriate product or services recommendations – an effort which can be achieved by having proper compliance technology and efficient workflows in place.
3. Reassess supervision technology
Article 16 requires the need for a robust monitoring system to ensure that advisers’ digital communications with a client are always appropriate and in line with the client’s best interests. As a first step, firms should assess their current data capture and supervision capabilities to identify any process and technology gaps. Firms should consider bringing in technology that can be customised to their supervisory needs, whether the need is to have all content pre-approved before advisers can use it, or to have pre-approvals or post-approvals mandated based on type of content and digital channel.
4. Ensure recordkeeping across digital channels
Finally, to be compliant with Articles 6 and 69, firms will be required to keep records of all electronic communications – including those via social media, email and text messages – from any device, ensuring that they maintain adequate records of disclosures of potential conflicts of interest. The records should be easily obtainable and available to clients for up to five years and, for regulators, up to seven years. It’s also important to record communications in a linear manner to avoid having to piece together communications from different devices if audited.
While firms have until January 2018 to comply with the rules, a swift and systematic approach to MiFID II is strongly recommended. MiFID II is one of several new regulations that are being considered to address gaps in European capital markets operations that were exposed during the 2008 financial crisis. Firms that are able to plan and implement robust MiFID II-compliant technology platforms for digital client communications and recordkeeping will be well positioned to deliver new and important insights to the front office while providing ongoing value to their advisers.