MiFID II focus is on "market integrity", shifting the emphasis from detecting and investigating market abuse, to encouraging fair and orderly market functioning; reducing systemic risk, ensuring robust levels of investor protection and strengthening financial stability by ensuring maximum transparency. In short, removing any opportunity for non-compliant behavior to occur in the first place.

Regulatory Authorities

ESMA - European Securities and Markets Authority

FCA - Financial Conduct Authority (UK)

Other Regulators in the EU and European Economic Area (EEA)

Relevant articles for Recording and Surveillance

Recital 144 - Existing recordings of telephone conversations and data traffic records from investment firms executing and documenting the executions of transactions constitute crucial, and sometimes the only, evidence to detect and prove the existence of market abuse as well as verify compliance by firms with investor protection and other requirements set out in this Directive or in Regulation (EU) No 600/2014.

Recital 57 (1) - Records are needed for all conversations involving a firm’s representatives when dealing, or intending to deal, on own account. Where orders are communicated by clients through other channels than by telephone, such communications should be made in a durable medium such as mails, faxes, emails, documentation of client orders made at meetings (2) investment firms to take reasonable steps to ensure that no privately owned equipment is used in relation to transactions.

Article 16 (6) - An investment firm shall arrange for records to be kept of all services, activities and transactions undertaken by it which shall be sufficient to enable the competent authority to fulfil its supervisory tasks and to perform the enforcement actions under this Directive, Regulation (EU) No 600/2014, Directive 2014/57/EU and Regulation (EU) No 596/2014, and in particular to ascertain that the investment firm has complied with all obligations including those with respect to clients or potential clients and to the integrity of the market.

Records must be kept s regardless of whether these conversations or communications lead to the conclusion of a transaction. Firms must ensure full compliance with telephone recording and electronic communications requirements. Such records can be (1) evidence demonstrating development of firm-client relationships (2) verify compliance with regulatory obligations (3) detect and prove the existence of Market Abuse.

Art 16 (7) - Recording of telephone conversations or electronic communications relating to dealing on own account (PAD) and client order services.

Firms must be able to reconstruct a trade from all the constituent parts of the deal as and when requested.

Recommendations

With MiFID II & MiFIR firms must ensure recording of all telephone conversations of regulated employees in front-office (trading floor), back- and middle office, and mobile devices if they are used for trading activities. This can be done with NICE Trading Recording (NTR).

With MiFID II & MiFIR firms must provide evidence they can detect behavior that may have relevance in terms of market abuse and this evidence must be readily available to regulatory investigation if requested. This can be done with NICE COMPASS and for surveillance with NICE Communication Surveillance.

With MiFID II & MiFIR firms must be able to reconstruct a trade from all the constituent parts of the deal as and when requested. This can be done with NICE Holistic Surveillance and with NICE Actimize Holistic Behavioral Analytics.