MiFID II communications complianceWith the new SM&CR extending to all FCA regulated firms this December, all financial institutions are bracing themselves and taking action (or at least, they should be). In the words of our Product Advisory Board Chairman Nick Child, “Senior Managers must demonstrate how they monitor and control those actions or inactions and ensure personnel act with integrity, skill and due care. Failure to take those steps would be foolish and dangerous.
The latest changes in the regulatory landscape will see the Senior Managers & Certification Regime come into effect for all 47,000 FCA regulated firms. This includes many buy-side firms, hedge funds and brokerage businesses. Another point causing nervous ripples in the sector is the first enforcements of the New Regime. No one likes to be the first the Regulator makes an example of, as they tend to be the strictest and hence the repercussions more severe.
The challenge goes beyond HR- related issues – In fact, now it’s harder for firms to recruit for certain higher-risk roles, such as CROs, heads of compliance and money laundering reporting officers. Costs also tend to be higher in the technology budget, as assessing and recording staff suitability would now be required and banks would be exposed to legal action if they decide to skip this step.
It’s now essential to have a means to prove active control and supervision of your employees. And it’s here where technology will play a key role in ensuring proper supervision. While we are at it, it would be only right to (and why not?) take the opportunity to transform Compliance systems into a competitive advantage.
Communications Monitoring for SMR compliance - what to look for in a technology solution?
Technology decisions is an area that will fall fall under the “Personal Accountability” of Senior Managers.
Firms will need to demonstrate that they are fully in control of all regulatory areas and issues, and capable of evidencing their decisions. Areas include: Communications Data and Business Operations.
Senior Managers can’t assume that their existing systems will necessarily be capable of delivering SM&CR compliance. They have an obligation to review existing technology and reassess their effectiveness. This can become a specific challenge for buy-side firms, as their past regulatory requirements were quite different from other firms on the sell-side for example.
The 4 pillars of effective communication control under SMCR
Technology gives senior managers the transparency and control they need and helps them prove they are taking the actions required to ensure compliance. Here’s the 4 pillars we believe make up effective communications control. Your institution should review each one when looking for a technology solution to help them ensure compliance:
Automated Communications Monitoring
Save money on consultants and extra personnel to extract and transcribe phone calls, IMs and deal information. Automate this process using a surveillance tool with high levels of accuracy that can handle any communication channel, be it voice or ecomms.
Clear escalation Levels
SMR states that all responsibilities for each role should be established and well documented. Clear alerting and policy documentation enables this. Make sure your technological solution has easily customisable workflows that ensure that the responsibility maps are being followed.
Action Accountability and Auditing
Being able to trace, monitor and audit negotiations and employee activities is fundamental to prove to regulators that your firm has active control and supervision of your employees.
Being able to set up and fine-tune your own policies without IT support increases your compliance efficiency.
Early Intervention Measures
The FCA has stated repeatedly that SM&CR is about improving culture and standards of conduct. This means they will not be soft on firms which don’t take this seriously.
How are you going to intervene if you don’t have the full picture of what is happening in the trading floor? Technology today can help you catch many different kinds of bad behavior, whether it’s market-based (front running, leaking insider information, collusion, etc), or HR based (#metoo, bullying, etc.).
Benefits of SMR Compliance for Buy-side firms
All staff need to understand and apply the requirements of SMR. Senior Managers must demonstrate how they monitor and control those actions or inactions and ensure personnel act with integrity, skill and due care.
Buy side firms can use communications surveillance technology not only to show the Regulator that they are actively compliant, but also to improve client interaction and make sure clients are getting the best deals, have clarity on fund’s transparency, as well as protecting privileged information from insider dealing.
A well-configured compliance solution will help you to intervene early in any signs of collusion and inappropriate information exchanges.
Learn more about the specifics of SMR in our Whitepaper.
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