How Cloud Communications Ensures MIFID II Compliance

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1 How Cloud Communications Ensures MIFID II Compliance Companies found noncompliant with MiFID II will risk fines of up to 5 million, or 10% of global turnover. Implemented in 2007, the Markets in Financial Instruments Directive (MiFID I) established a standard regulatory framework for financial investment service institutions across EU member states. Key to the directive s commitment to transparency was the requirement that firms record, retain, and make available for auditing all communications regarding client orders and transactions. This increase in pre- and post-trade transparency requirements had a significant impact on investment and equity markets. In 2018, MiFID II is set to yet again rock the investment management industry, with the launch of an even more ambitious and extensive array of communications regulations, affecting a much wider range of financial firms than its predecessor. Over the last decade, there has been a seismic shift in how investment and fund management firms communicate with clients, with mobile and fixed line calls now joined if not replaced by new technologies ranging from and SMS to messaging apps and video conferencing. MiFID II represents a concerted response by the European Parliament and Council to scale regulations to match the expansive variety of communications channels now used to engage with customers and prospects. MiFID II represents one of the most fundamental and far reaching regulations that the industry is addressing, impacting all financial organizations that deal with the European markets. John Mason, Head of Regulatory Content Propositions, Thomson Reuters This report explores the implications of MiFID II for the investment and funds industry and the solutions cloud communications can afford towards ensuring immediate compliance.

2 Mandatory recording of communications Introduced on January 3rd 2018, the directive will significantly enhance the robustness of financial markets by substantially increasing the level and scope of communications which need to be recorded and retained. MiFID II requires the recording of all communications that are intended to lead to a transaction, across any telephone device or electronic communications, with the recording retained for five years. Instructions from the European Commission 54% of senior decision makers believe more education is needed on MiFID II requirements Teleware Research Survey Under the regulations, any form of conversation or communication (even if no agreement or sale occurs) must be recorded where it involves: The reception of an order/transaction from a client The modification or cancellation of an order/transaction The transmission of an order/transaction The execution of orders on behalf of clients The conclusion of an order/transaction Any trades or affairs relating to an investment company s own accounts. Although MiFID II is one of the most decisive directives ever to be imparted on the funds and investments industry, firms still lack understanding of its expectations and implications. Not only are there many grey areas in the directive, but transitioning to conformity is also perceived by many in the funds industry as a complex, expensive responsibility. The only sure thing is that MiFID II will change the financial markets as we know them today Harpreet Singh, Director, Brickendon Consulting - Risk and Regulatory

3 The significant challenges facing investment firms Ensuring compliance across multiple devices and platforms The major issue for investment management firms under MiFID II is the extension of communications compliance. Whereas MiFID I related only to fixed calls, MiFID II extends to not only include softphones, desktop phones, and mobile phones but also electronic communications, such as , online chat, SMS, messenger and third-party apps such as WhatsApp and WeChat. These newer platforms are critical to business success, given that customers now expect investment firms to offer video, text and other forms of real-time communications, not to mention the thriving bring-your-own-device (BYOD) culture and growth of remote working within the investment and funds sector. Limiting or removing communications across multiple devices and platforms to prevent regulatory sanctions is not an option; investment management companies must instead find a way to bring their omni-channel communications in compliance with MiFID II. The impact of MiFID II on how investment firms can interact with their clients is enormous Alain Hondequin, General Counsel, Business Clusters, ABBL Addressing the shortcomings of legacy systems 90% of buy-side firms believe they are at high or medium risk of not being MiFID II compliant. JWG 2017 Survey In their rush to meet MiFID II regulations, many investment management firms will quickly discover that their current communications systems and vendors simply do not have the capability to meet compliance, despite the lengthy advanced warning of the directive s impending launch. Where vendors have not been successful in advancing their technologies, or launching alternative solutions to ensure compliance, there derives an immediate need for many investment management firms to enlist a new communications vendor and solution to meet compliance. Many market participants will rely on vendors for a MiFID II compliance service. However, it s likely that vendors will discontinue some existing offerings and new contracts or repapering will be unavoidable. Linda Gibson, Director of Regulatory Change and Compliance Risk, BNY Mellon s Pershing

4 Maintaining compliance across multiple investment market regulations For investment management firms already struggling to maintain compliance with AIFMD, UCITS, EMIR, Dodd-Frank and MAR regulations or prepare for the simultaneous arrival of GDPR in May MiFID II presents yet another layer of complicated regulations to contend with. In reviewing and implementing solutions and procedures to ensure MiFID II compliance, investment management companies cannot afford to compromise on their ability to ensure continued compliance with existing or imminent legislation. How Cloud Communications offer a simple solution MiFID II demands that your organisation listen to, read, record, retain, audit, report and supervise all communications with all clients and prospects across all devices. Fortunately, that is precisely what an omni-channel cloud communications solution such as Solgari can deliver. Engage with all clients on any channel through one platform By transitioning to an omni-channel cloud communications platform, an investment management firm can bring all communications channels together through a single cloud solution across all devices, allowing the organisation to engage with clients and prospects via voice call, video call, messenger apps, online chat and more. Because communications channels and services are connected via secure user end points to the cloud communications platform and integrated with in-house CRM systems, all engagement can be easily recorded, archived, supervised and audited. An instant solution requiring no capital investment A switch to cloud communications does not require capital investment and provides instant resolution to MiFID II compliance concerns, permitting the most costeffective transition available. Firms do not have to risk losing customers by eliminating the use of certain communications channels, invest heavily in trying to bring legacy systems up to standard, or find themselves trying to tackle compliance channel by channel, using multiple solutions.

5 Compliance now and in the future The security of omni-channel cloud platforms like Solgari far surpasses the requirements of any current or impending compliance regulations for investment and trading firms, including PCI DSS, FCA, and GDPR. All communications are recorded and stored in a military grade encrypted environment that can be audited, supervised and reported as needed. However, cloud communications is characterised by constant innovation, poised for the introduction of new capabilities and features to strengthen compliance, such as search and retrieval, reporting, and speech analytics. Compared to standard legacy systems, cloud platforms empower the organisation to consistently stay ahead of impending regulatory requirements and meet current and prospective communications regulations globally. FINSA s trading platform is available to brokers in multiple countries worldwide. We have a number of regulatory communication requirements, including being able to archive all communications to meet MiFID II and FCA compliance. Finally, with Solgari, we are now able to access all these services on a single cloud software platform. Paul Bateman, Head of IT, FINSA Transforming compliance into opportunity Communications regulation has finally caught up with the changing nature of engagement between investment fund managers and their customers. MiFID II will affect the entire value chain, from distributors of funds to the end-clients of asset managers. However, by leveraging the potential of innovative cloud technology, firms can exploit the introduction of the directive as an opportunity to strengthen client relationships and enhance customer experience. Using cloud communications, the funds industry can release the business value of compliance and drive growth by increasing customer data security and expanding the number of channels through which they can engage with prospects and clients.

6 About Solgari Solgari provides compliant, integrated, omni-channel cloud communication services to customers in more than 30 countries. Our integrated cloud platform provides all business communication channels while ensuring GDPR, PCI DSS & MiFID II compliant recording & archiving of all communications. Customers access all business communications and compliance requirements, regardless of location, on a per user, per month, SaaS model, removing the cost and complexity of legacy solutions. The Solgari platform enables us to ensure immediate compliance with MiFID, SEC, GDPR and all other regulations across omni-channel communications in our European and North American offices. We couldn t find any other vendor with this global capability. Rich Corbett, Principal, Palm Street Capital solgari.com sales@solgari.com UK Asia Pacific USA Germany EMEA