With MiFID II looming, finance businesses across the UK will be reviewing their practices to ensure the way they work complies with the new regulations. Here, Alex Tebbs, Founder at VIA, explains what the regulations mean for the way we communicate as businesses, and how your business can comply come January 2018.
MiFID II is a targeted regulation update that aims to improve transparency and better protect both providers and customers of the finance sector.
In that sense, it exists to make things better for everyone; but with the January deadline looming and uncertainty still rife around the impact of Brexit on the update, many in the finance industry are still considering the best way to achieve compliance in their business.
It’s a regulation update made up of many facets, one being the requirement for businesses to record their communications in any instance where that conversation results in, or intended to result in, a transaction. Those communications must be retained - and be accessible when called upon - for five years after the event.
Creating a post-MiFID communications plan
In many ways, the communication requirements of MiFID II make a lot of sense. By recording our conversations, we can be sure that we are serving our customers in the best way, and that they are protected from any potential misunderstandings or misdemeanors.
But in today’s multi-device, multi-location business landscape, compliance isn’t so simple. While once we would have communicated on one device (likely a landline) and from one office, the reality of business today is that we often use multiple devices (and even encourage colleagues to bring their own devices) and operate across multiple locations, including remote working from home, offices in different countries and communications on the move.
This presents a challenge for finance professionals. How do we achieve compliance in this complex communications landscape?
The best place to start is with a review of your existing communications plan as a business. You’ll need to work out what platforms and devices are used to communicate, and make a record of all of those, as they will need to be included in your recording strategy. Be aware that this mightn’t be as straightforward as it sounds, and it’s likely to take time to uncover all the comms platforms in use.
The next step is then to work out how best to record those communications. On a landline, this would require hardware such as a microphone plugged into the handset. There are various apps that make it possible to record calls on a smartphone or via clients like Skype.
An alternative to this somewhat clunky process is to invest in a unified communications platform. This brings all your communication tools - smartphones, landlines, Skype, instant messaging, text - onto one platform which can be easily controlled from one portal, making recording and keeping those conversations a much easier, quicker process.
However you choose to manage your communications, one thing is clear; you will need to be able to both record, and keep, those conversations from January when MiFID II comes into play.
Security considerations in communications
It certainly won’t have passed by your attention that another sizeable regulation update is taking place in 2018; namely, GDPR, an update to data protection rules.
With GDPR putting renewed emphasis on security - and with MiFID’s requirements for comms recording - security should be placed firmly atop the agenda of financial firms.
There are various options on how we achieve security in communications. The most universally relevant and powerful is that of end-to-end encryption; with the main risk of unsecured comms being that communications could be intercepted en route, end-to-end encryption removes this risk by making the information, even when intercepted, entirely useless.
For those businesses using a unified communications platform, encryption and many other security considerations are included as standard, with large investments being made by those companies into stress testing their platforms and removing any vulnerabilities as soon as they are considered as a potential risk factor. For those using separate communications channels, a strict security testing strategy will need to be in place to ensure all communications are safe and private.
In terms of retaining those recorded conversations, security is a concern once again. Secure servers and storage areas are a must; consider also who has access to these recordings, and ensure they have a signed agreement in place that complies with data protection rules, and that your business’ data protection processes are up to date - especially as GDPR hits in May 2018.
MiFID II and the communications landscape
There is much left unknown about how MiFID II will affect finance businesses in the long run, and it’s likely that the implementation of its regulations will uncover complexities that need to be clarified as we move into the new year.
With that said, the communications element is prescriptive; finance professionals must record and maintain a record of all communications, regardless of device, platform or location. Is your business ready?
There’s nothing so gratifying about the way democracies are run as when national politics influences public policy because of an outburst of public anger. Here Julian Dixon, CEO of Fortytwo Data, expresses his thoughts on the challenges of confronting issues of clarity in the reporting of events such as the Paradise Papers leak.
So it is a little unnerving to find such a muted response to the Paradise Papers data dump.
When the scandal’s predecessor - the story of the Panama Papers - broke with disgusted headlines around the globe, people actually took to the streets.
There has been no such outpouring of rage this time around. And that’s because people just don’t get it. But, it’s got less to do with the current revelations and more to do with what happened after Panama.
People take their cue from other public mishaps. They remember similar headlines during the MPs’ expenses scandal. And then they remember the (ex) MPs going to jail.
It was a public hanging of Westminster’s dirty washing, the likes of which we had never seen. Then, in the wake of the Panama Papers, the public also expected justice and change.
They didn’t get it, although the similarities are obvious. The amount of information disclosed in the cases of the Panama and Paradise Papers was similarly grand. It touched on many public figures. And in the reporting, the significance of the leaks was billed as equally earth-shattering.
So where are the prosecutions?
Yes, some politicians lost their jobs within days of the Panama Papers story breaking but that was politics. They weren’t departures that resulted from the considered response of prosecutors.
“The difference between illegal tax evasion and legal tax avoidance is as clear as mud”
Having been promised blood and justice for all, it all appeared to fizzle out.
This is how tax avoidance is a story without an ending. People are destined to relive the public-spirited angst that makes each data dump newsworthy, without the satisfaction of seeing real change. And there is one reason for this - bad laws.
To the average person on the street, the difference between illegal tax evasion and legal tax avoidance is as clear as mud. The public feel unable to ask for change because they cannot clearly see what is broken. And this confusion bleeds into the authorities’ response.
Google media reports of ‘Britons being charged with criminal offences in light of the Panama Papers’ and you find nothing.
Misleadingly, many of the reports carrying headlines cite appalling tax avoidance.
Even relatively sophisticated journalists don’t know where ‘avoidance’ ends and ‘evasion’ begins.
If people are to have faith in the system, then they need to see the authorities acting on tip offs and bringing prosecutions that live up to the hype.
My suspicion is that much mean-spirited behaviour is not criminal - but it should be. However, as the law stands now, the difference needs to be explained clearly to those not wealthy enough to need offshore accounts.
It is no small irony that just like fast cars and expensive watches, if you need to ask how much tax avoidance costs, you can’t afford it. It shouldn’t be this way.
While this confusion reigns, the country is doomed to a vicious cycle that results only in growing public disquiet. People know they should be angry about something, they just can’t quite put their finger on it.
Hysterical reporting of offshore banking becomes a distraction. Politicians relax when it turns out what people are doing is legal. Instead, they should be asking the question ‘shouldn’t it be illegal?’
Accusing people of wrongdoing just because they bank offshore is unhelpful. There are many legitimate reasons why people do it and it’s not all about avoiding tax.
But there are just too many ways offshore tax rules can be legally exploited by people who just want to avoid paying their fair share.
You must be wondering by now why a guy like me who helps banks and others hunt down money launderers is that bothered about the tax affairs of a financial elite.
In our business, you can have the smartest computer in the world capable of identifying money laundering in vastly complex webs of transactions. But if you have millions of dollars being moved by thousands of transactions into dozens of offshore locations, that hide behind complex legal frameworks, it’s worthless.
As these transactions happen offshore - and, we as a species, are naturally hostile to the opaque nature of overseas financial centres and tax havens - it would be better if they were reduced and made more transparent.
If most forms of tax avoidance (not evasion) are wrong - as everyone seems to agree they are - I see the criminalisation of much tax avoidance as our best hope of being able to properly enforce the law in sheltered jurisdictions.
Clarity and a proper public, political debate that doesn’t just act as a smokescreen seems to be all that stands in our way.
