RegTech – MiFID II and beyond
Tom Harwood, Co-Founder and Chief Product Officer at Aeriandi
The Markets in Financial Instruments Directive II (MiFID II) comes into force on 3rd January 2018. MiFID II will have a huge impact on how financial organisations record and archive calls that contain any type of financial advice that could result in a trade or transaction. The Financial Conduct Authority (FCA) currently dictates that only the telephone conversations of individuals directly involved in trading need to be recorded. MiFID II will be a big change.
From 2018 onwards, conversations between the likes of wealth managers or independent financial advisors and their clients will fall under the scope of MiFID II. As well as applying to both fixed line and mobile phone conversations, the new MiFID II regulation requires that all calls must be stored and accessible for a minimum of five years – and up to seven years in some instances.
One of the main objectives of MiFID II is the pursuit of harmonised regulation across EU financial markets to ensure appropriate levels of protection for financial services customers. This has been a continued focus for regulators since the 2008 global financial crash, and has precipitated growth of a new tech market: RegTech. Regulatory Technology, known as RegTech, helps firms achieve compliance with the increasing amount of market regulation. It uses information technology to enhance regulatory processes, putting particular emphasis on monitoring, reporting and compliance.
The MiFID example
RegTech will be instrumental in helping financial services firms achieve MiFID II compliance. Businesses affected by MiFID II will need to prove they are able to securely record, archive and access a huge volume of calls. Legacy technologies have enabled businesses to achieve compliance in the past, but now the pressure is on to navigate a far more arduous regulatory landscape.
Today’s cloud-based RegTech call recording and archiving solutions offer a fast, flexible and scalable option to firms that want to stay compliant. They are often easy to implement and offer the ability to access call recordings and archives from anywhere, at any time, via a secure online portal. This is particularly beneficial for firms that operate multiple sites or in multiple geographies, where achieving compliance without a technology solution would be virtually impossible.
Given the scope of new regulation that firms will need to address in 2018, including the widely reported EU General Data Protection Regulation (GDPR), there will be a necessary shift towards more malleable technologies that support compliance with multiple regulations. Since the financial crisis, solutions have largely addressed specific regulatory requirements as and when they arise. This approach may have resulted in cost savings in the short-term, but as the regulatory landscape has shifted, the cost burden has risen. Organisations now need to invest in a more robust, agile operational structure that can address changing requirements more efficiently and at a lower cost.
The RegTech future
There is a growing need for better solutions that can adapt and be modified over a shorter time-span and at a lower cost to respond to a wider variety of issues. Newer platforms can amalgamate the streams of information currently collected by multiple products, and consolidate the data in a central point, where it is available to then be fed into whatever system or report as required. When new regulations are introduced, or changes to an existing regulation occur, the consolidation of data should allow for a faster and easier response. This means that customer data is more secure, businesses have access to new insight, and companies are less likely to fall foul of financialpenalties for non-compliance.
A move towards RegTech platforms that offer a more flexible, rapid and affordable solution should address the significant costs that continue to plague financial institutions. It also aids firms in staying ahead of further regulatory changes in the coming years.
Innovation in RegTech
Innovative companies are capitalising on this need for more adaptable technologies. Last year a record £507m was invested in RegTech companies globally. London takes the top spot for the city with the most RegTech deals with 39 investments between 2012 and 2016. The outlook for RegTech, and for London in particular, is very positive. Compliance and regulation has always been a fragmented and inefficient area. It presents a huge cost for banks and puts pressure on maintaining a good customer experience. As financial institutions continue to face ever-increasing regulation, accompanied by spiralling costs and complexity, they become even more receptive to new companies and technologies that can offer reliable solutions. In 2018, RegTechis poised to combat these inefficiencies and provide new, actionable insight for firms. It will continue to deliver results for businesses, whilst ensuring security for consumers.