ATEB Consultings Alistair MacDougall considers the rules around the recording of client interactions and how may they be used to improve outcomes for clients, including compliance considerations and case studies.
Since MiFID II came into effect in 2018, it has been a requirement on firms to take reasonable steps to record all telephone calls, and keep a copy of electronic communications, that relate to the activities in financial instruments referred to in SYSC 10A.1.1R(2) (and that are not excluded by SYSC 10A.1.4R), and that are made with, sent from, or received on:
- equipment provided by the firm to an employee or contractor; or
- the use of which by an employee or contractor has been accepted or permitted by the firm
Such audio records must be stored in a durable medium which allows them to be replayed or copied and also retained in a format that does not allow the original record to be altered or deleted. Accordingly, firms must also take all reasonable steps to prevent an employee or contractor from making, sending, or receiving relevant telephone conversations and electronic communications on privately-owned equipment which the firm is unable to record or copy.
The telephone conversations and electronic communications referred to in SYSC 10A.1.6R include those that are intended to result in the performance of the activities in financial instruments referred to in SYSC 10A.1.1R(2), even if those conversations or communications do not in fact result in the performance of such activities.
So some telephone calls are ‘exempt’ from the call recording requirement but for practical reasons, many firms will simply record all calls rather than run the risk of not recording an in-scope call.
A MiFID optional exemption firm, in particular an Article 3 Exempt firm, that provides services solely or mainly to retail clients is not required to comply with the requirements of the rules relating to call recording provided that any telephone conversations that would otherwise be subject to the rules are recorded instead using a written file note and the note includes at least the following information:
- date and time of the conversation;
- identity of the individual participants in the conversation;
- initiator of the conversation; and
- relevant information about the client order, including the price, volume, type of order and when it will be transmitted or executed
As we have written in previous articles on the topic, the file note requirement should not be any great issue for adviser firms because there has long been a requirement to document interactions with clients.
Zoom forward …
… to the past year or so and we have seen a dramatic increase in remote meetings with clients, using Zoom or Teams or one of the other video calling apps.
That this increase was driven by pandemic necessity rather than a sudden desire in firms to make a great leap forward in their use of technology is academic. The fact is that many, if not most, meetings will have been conducted remotely and it is widely anticipated that many firms are likely to continue interacting with clients in this way, at least with some clients.
That is certainly our experience – and we are seeing more and more firms recording meetings with clients that are carried out by telephone or video calling software.
The apps make recording video meetings very simple. The question is around what regulations have to say about recording.
Data Protection requirements
The primary regulations that impinge upon the situation are the Data Protection Act 2018, which is the UK’s version of GDPR and the Telecommunications Regulations 2000. The rules distinguish between individuals and businesses. Individuals can record conversations without consent if the recording is purely for personal use.
And the Telecommunications Regulations 2000 state that businesses can record calls without consent for the following purposes:
- To record evidence of business exchanges
- To review whether quality standards are being met
- To ensure a business complies with regulations
- To prevent and detect criminal activity
- To investigate the suspicious use of a network
Actually, that is the plain English summary – you can read the full list in the legislation here.
However, while there is no need to notify the other party about recordings if they come under one of the above, it is undoubtedly good practice to have either an automated or verbal disclaimer in place. That is why the following phrase will be very familiar to all.
“Phone calls are recorded and monitored for training and quality purposes.”
That covers the act of recording but does not cover regulations relating to the actual data recorded. In the context of advisers’ conversations with client, it is highly likely that the content of the recording will constitute personal data for the purposes of the Data Protection Act 2018 and so be subject to all the requirements around confidentiality, security and so on.
Specifically, according to the Data Protection Act 2018, to record a corporate phone call (we consider that the rules would also logically apply to video meetings which are, after all, merely audio calls with added pictures!) the caller has to:
- inform the secondary party how the content will be used
- gain consent from the other party
- keep the data in a secure, accessible manner
Calls or meetings with an existing client should be mostly covered as the client should already have received the firm’s privacy notice and given consent to data processing where required or the processing will be carried out under the lawful basis of ‘performance of contract’ rather than consent.
But firms now doing video meetings would be well advised to check that their privacy notice does cover the firm’s practice in respect of recording calls or video meetings.
Despite this, professional courtesy would suggest that the client should still be informed at the start of the call or recording and, if they object, the recording should not occur. Zoom and Teams both flash up a message on screen when a video call/meeting is being recorded, which is helpful.
As mentioned at the start, recordings must be stored in an accessible format in case the regulator (or your compliance team or compliance consultant) wishes to examine them.
We would also suggest that recordings are considered as additional to notes not instead of. The back up act, not the main event. The reason for this is that it is much easier and quicker to read a fact find or file note than for interested third parties to have to sit through a 20 minute call or a two hour fact find!
Having said that, if firms are recording calls or meetings, then it is highly recommended that they make good use of the recordings to improve quality of advice and client interactions.
So compliance and/or supervisors/managers should definitely monitor a sample of each advisers calls/meetings from time to time to gain further insight into the quality of interactions.
The difficulty for everyone other than the adviser who needs to review a file or a recommendation is that only the adviser and the client were in the call/meeting.
Third parties have always had to rely entirely on what the file notes, fact find and suitability report stated and those are often less than complete or clear.
Even where the file is beautifully documented there is always the possibility that what the file states and what was actually discussed with the client, or what the client understood the adviser to have said, are different.
The presence of a recording can be extremely valuable in the event of a client complaint where the he said/she said nature of many complaints can be more definitively addressed.
Recordings can also aid file reviews and assessments of suitability.
We have personal experience of reviewing cases where the conclusion that was building up from a reading of the client file changed entirely after listening to a recording of the client meeting. That works in both directions though.
Case in point
One case we recall, was headed for a suitable grading based on the well documented and presented client file and comprehensive suitability report. Having almost completed the review, we noticed a strange file in one of the client folders. It turned out to be a recording of the adviser’s call with the client to go over the recommendation. Ten minutes into the call, the adviser made several statements that were blatantly misleading and inaccurate. These were considered to have played a significant role in the client deciding to proceed and so we had no hesitation in considering the recommendation to have been unsafe.
Another case was not well documented and, from the client file, we had serious concerns as to how well the client actually understood the risks involved and whether his objectives, as stated in the suitability report, were actually his objectives or what we call adviser/product-led objectives intended to make the client appear to match the solution instead of the solution matching the client.
After listening to the recording of the meeting, it was a pleasant surprise to be reassured not only that the client did indeed want to achieve the outcomes stated in the report but also clearly understood the risk and implications of what was being recommended.
The adviser also was heard to do a good job of explaining the recommendation and answering the client’s questions – he just didn’t get such high marks for the quality of the written documentation!