ESMA clarifies how to comply with the MiFID II telephone recording requirements in response to the Covid-19 pandemic
Section 9-17 of the Norwegian Securities Trading Act implements the MiFID II requirements on recording of telephone conversations, stating that credit institutions and investment firms shall record, amongst other, all telephone conversations in connection with the performance of investment services and activities (except operation of MTF and OTF).
The firms shall take all reasonable steps to (i) record such telephone conversations, and (ii) prevent an employee from making, sending or receiving such telephone conversations on privately-owned equipment which the investment firm is unable to record.
Credit institutions and investment firms shall further maintain an effective policy for recording of telephone conversations to ensure compliance with regulatory requirements. Alternative procedures should be established when recording of telephone conversations is not possible.
Considering the exceptional circumstances created by the Covid-19 outbreak however, ESMA recognises that some scenarios may emerge where the recording of relevant telephone conversations may not be practicable for the firms. ESMA illustrates this with the example of the sudden remote working by a significant part of staff.
Should such exceptional scenarios emerge, ESMA states that it expects credit institutions and investment firms to consider alternative steps to mitigate the risks related to the lack of recording. ESMA considers that written minutes or notes of telephone conversations could be an alternative. Prior to the conversations, clients shall be informed that recordings are not possible and that written minutes or notes will be taken instead. In these scenarios however, the firms shall ensure enhanced monitoring and ex-post reviews of relevant orders and transactions. In addition, the firms’ compliance function should review written minutes and notes to ensure sufficient details is captured.
ESMA also states that it expects credit institutions and investment firms to deploy all possible efforts to ensure that alternative steps remain temporary and that recording of telephone conversations is restored as soon as possible.
Although such alternative steps are temporarily acceptable, firms should note that the strict storage requirements still applies. All written minutes and notes from telephone conversations should be stored for minimum five years and shall be available for the clients. Hence, adequate arrangements should be implemented to ensure safe storage as well as compliant routines on how clients can access and inspect the written minutes and notes.
Certain Norwegian credit institutions and investment firms has already enabled recordings of employees’ privately-owned cell phones, hence the issue of sudden remote work should be mitigated. However, for the firms who have not implemented this, alternative arrangements should be implemented immediately to ensure compliance with the requirements.
The Norwegian Financial Supervisory Authority is expected to adhere to the considerations of ESMA.
The issue discussed above is just one of several issues inflicted on financial institutions after the Covid-19 outbreak. Simonsen Vogt Wiig are closely monitoring the situation and related requirements implemented by the authorities and has established a taskforce to keep you updated and provide support on the legal challenges and issues raised by Covid-19 and its consequences. Please find more information on our website www.svw.no/corona.