MiFID II – How to meet the recording requirements

With less than a month to go before 3 January, when MiFID II will be implemented, there is only one question for you. Are you ready? Time is running out when you factor in the Christmas break, which this year will be 10 days. That gives you just 11 working days to get your firm’s house in order, so you have no time to lose in assessing how ready you are.

MiFID II – Requirements for Compliance

MiFID II has more stringent requirements for compliance, in order to increase transparency and better safeguard investors. Undoubtedly, the requirement to record all client calls and keep written records of face-to-face meetings will have the biggest day-to-day impact and failure to have strategies and processes for these is likely to create financial stress for form that won’t be ready in time.

The written records must be detailed and should include: who attended, when the meeting took place (including the time) and where, client data (order type, price, volume and date of execution). Get this in place first and the rest should follow easily. Consider drawing up a template that all meeting initiators must complete – this should ensure that there is a complete, detailed record for each meeting. You should also be considering audio recording of such meetings, just as you would for client calls.

The LEI requirement is among the most complex and requires firms to apply for a code that identifies legally distinct entities that engage in financial transactions. Each code is unique and consists of a string of 20 characters that are letters and numbers. Individuals don’t need a LEI code, but instead must submit personal identifier data such as passport number and tax reference code. Without a LEI code in place, you won’t be able to obtain banking services for transaction reporting.

We recommend you waste no time in drawing up a checklist of all the things you need to do, or have already done – this will give you a picture of all the outstanding matters you need resolve before implementation. The basics are:

• Recording client communications
• Client agreements
• Independence
• Conflicts of interest
• Aggregated disclosure of costs and charges
• Suitability and periodic suitability assessments
• Structured deposit permissions
• Product governance
• Legal entity identifier (LEI) application
  • 1) All entities trading derivatives (except for private individuals)
  • 2) All entities issuing equity, debt and all entities listed on an exchange
  • 3) All entities trading equity or debt (except for private individuals)
  • 4) All entities supervised by a financial regulator and their affiliates, subsidiaries and holding companies.

Create a chart of these different issues and mark them as follows: not started, nearly ready, or ready. You can then start ticking them off. Some of these will be quicker to get ready than others, such as assessing your structured deposit permissions, so tackle these as soon as you’ve put processes in place for written records of client meetings.

Don’t forget that there are variations in how MiFID II applies – investment advice funds and discretionary management firms have different requirements. For example, DFMs need to perform quarterly reporting and report 10% portfolio losses of above 10%. Some IAFs are exempt from Article 3 so their obligations will less strict. Your readiness chart should take account of these.