MiFID II is part of the EU’s revised Markets in Financial Instruments Directive impacting any organisation providing financial advice leading to trade or investment throughout Europe. The UK is still obliged to comply with the changes, despite Brexit looming on the horizon. MiFID II comes as part of the reaction to the previous 2008 financial crisis aiming to provide investors with greater protection. It’s designed to restore investors confidence, increase transparency and standardise regulatory procedures.
Previous best practises have now become explicit requirements, for example as of January 3rd when MiFID II goes live, anyone involved in the advice chain, including and not limited to mobile phone conversations, must be recorded and kept for a minimum of five years (up to 7 on request). Organisations will also have to prove the recorded calls have been periodically reviewed with documented and implemented policies and procedures. Furthermore, organisations are required to have a single appointed officer responsible for protecting the interests of clients from within.
Consequences of non-compliance extend to both financial sanctions and reputation risk.
Financially, non-compliance exposes financial institutions to sanctions of up to £4.6 million or €5 million, or 10% of annual turnover. Unfortunately, further administrative fines can also be imposed exceeding the maximum sanction amount. These can potentially extend fines to twice the benefit received from the trade or investment in question, resulting in significant sanctions being levied.
Financial institutions have spent a lot of resources building brand reputation bridges in recent years following rules being broken, which resulted in the economic crisis. While it’s difficult to put a specific number on how much the negative impact a breach in compliance will cost your brand reputation, it is a black mark financial institutions will not want rearing its head. Misdemeanors can quickly serve as reminders to rule breaking ghosts of the past, and this can accelerate brand damage.
Transparency obligations require institutions to declare instances of non-compliance, so it is certainly worth considering the risks of non-compliance exposure.