Why Are Capital Markets Still Managing by Policy

By Andrew Fawcett, Product Manager, TeleWare 

All banks have strict policies in place at all levels to manage both financial and non-financial risk. Technology plays a key role in effective risk management. It can help by collecting, storing and monitoring large amounts of data. In turn, the data is analysed and used to spot upcoming trends or recurring trends to help develop new working practices to lessen or mitigate risk.

What is managing by policy?

Andrew Fawcett

With MiFID II on the horizon for January 2018, communications monitoring requirements will be increasing massively. Monitoring and recording employee communications can provide the evidence needed for compliance purposes and can also protect businesses and their employees in the event of any regulatory investigation.

Traders use multiple communication methods in their working lives, interchanging technology frequently. A single conversation can now integrate fixed line phone, mobile, SMS, email or instant message. For financial institutions to be compliant with MiFID II, all conversations regarding a trade must be encrypted, untampered and time stamped. This is increasingly difficult (and costly) when using multiple media platforms, especially if the recordings aren’t all stored in one place.

Many firms will attempt to comply with MiFID II by ‘managing by policy’.  This means mandating all regulated communications so they happen on recorded landlines and via tracked terminals. 

With MiFID II, will managing by policy be sustainable?

 Creating numerous policies for staff to abide by is fundamentally incompatible with modern working practices.  Traders are ‘always on’ and need to work whenever and wherever they are.

More regulation also means that policies become more complex, even contradicting each other. With both MiFID II and GDPR hitting in 2018, this is likely to increase further.  Managing by policy is likely to add further complexity into a firm’s approach to regulation.

For instance, each trading floor in a financial firm has its own set of policies which staff must abide by. The trading floor manager must ensure that all trade based calls are recorded and monitored. An often-used policy that still exists is to ban all mobile phones on the trading floor. To enforce this, mobile phones are often stored in lockers. This is problematic though as important communications could be coming through on the mobile device which the employee is unaware of.

Ways to implement compliant technology for the recording and storage of data

Bring Your Own Device (BYOD) is popular because it is convenient for employees and can reduce costs for employers. But ensuring use of BYOD devices in a compliant way can be problematic. Installing a recording solution can overcome this, but the solution does need to consider private as well as business use.  This is going to be particularly important when GDPR comes into effect in May 2018.

SIM based recording solutions are effective from a compliance perspective, but they record all calls and SMS messages, meaning that all personal calls and messages are recorded as well as business calls.  An alternative to this is to use an app based recording solution.  These can separate out business and personal calls by providing a different number for business calls.  This solution does require the user to use the app for business related calls that are need to be recorded, so it is really important that the firm has a clear policy in place to ensure users dial from the application to ensure compliance is maintained.

The benefits stretch beyond compliance

 Cloud migration is now ubiquitous, even in capital markets. Early fears around security have largely been put to rest and the benefits are clear, including greater flexibility, reduced capital expenditure and overall cost effectiveness.

MiFID II is proving to be a watershed in cloud migration within capital markets because more firms are effected, with far greater numbers of employees and more conversations than ever before needing to be recorded.  So, the rise of integrated, cloud based recording solutions which time stamp each recording is a really effective solution.  But, those businesses who can analyse those recordings to deepen their understanding of what is happening across their organisation have a huge commercial advantage.

More recordings equal more insight which can help to improve client experience, increase productivity whilst also meeting regulatory requirements.