EU Gives Leeway On Recording Trades Amid Virus Crisis

Law360, London (March 20, 2020, 4:03 PM GMT) -- Financial advisers will be allowed to deviate from Europe’s securities rulebook if they are unable to record phone calls to clients about trades during the coronavirus pandemic, the bloc’s market watchdog said Friday.

The European Securities and Markets Authority said that there may be some instances during the spread of the COVID-19 disease where financial companies cannot record conversations that they are required to under the Markets in Financial Instruments Directive. The rules, known as MiFID II, force financial advisers to tape calls with customers to ensure that trades are executed correctly.

But ESMA said Friday that it expects financial businesses to take alternative steps to mitigate risks if they are unable to record conversations during the “exceptional circumstances” created by the outbreak, such as because staff are working from home. This could include taking written minutes or notes of conversations.

“Considering the exceptional circumstances created by the COVID-19 outbreak, some scenarios may emerge where, notwithstanding steps taken by the firm, the recording of relevant conversations required by MiFID II may not be practicable,” the watchdog said in a statement.

ESMA said that financial advisers must start recording calls again as soon as it is possible for them to.

“Firms are expected to deploy all possible efforts to ensure that the above measures remain temporary,” the EU authority said.

The watchdog said it is in talks with national regulators to ensure that the bloc is using its powers to ensure financial stability and investor protection.

The relaxed rules are in line with other measures being set out by regulators across Britain and the EU since the spread of the virus became a global pandemic.

The U.K.’s Financial Conduct Authority has faced a backlash to the recording requirement under MiFID II, which was introduced in 2018. The FCA responded by allowing British advisers to take notes rather than tape calls.

But the U.K. watchdog has urged advisers to tape conversations as this will provide them with evidence of their advice should a customer complain about how they assessed the suitability of a trade.

The FCA had a taping regime for financial advisers in place since 2009 and had said that widening this under MiFID II would create a valuable way to gather evidence for market abuse cases and other related regulatory breaches.

--Editing by Rebecca Flanagan.

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