Compliance with Dodd Frank and MiFID II

The impact of the global financial crisis of 2008 continues to reverberate in Europe, the United States and worldwide. International financial institutions are faced with stringent regulations and often struggle to comply to avoid strict penalties.

Any consultations with potential customers or discussions leading to a transaction must be recorded, archived and easily retrieved, often for periods as long as five years or more. Doing so in a transparent and streamlined manner still represents one of the major challenges facing financial institutions and trading floors.

Dodd Frank and MiFID

The near collapse of the world financial system jolted international organizations, financial institutions and government agencies and resulted in strict legislation designed to prevent a reoccurrence. The passage of Dodd Frank in the United States, and MiFID I and MiFID II in Europe, placed tight restrictions on trading floors.  

Title VII in Dodd Frank mandates extensive record keeping and real-time reporting requirements. For transactions in the past 12 months, all interactions related to a single transaction must be provided to regulators within 72 hours. File records for all interaction content, not just the outcome, must be maintained for five years. A dedicated consumer protection agency as well as oversight by the SEC are designed to increase transparency and ensure strict enforcement.

MiFID II mandates the preservation of every interaction with the potential of a transaction. Phone calls, electronic communications and face-to-face conversations must be archived for five years. A special section has been added to the original MiFID to specifically address recording requirements. MiFID II was implemented as an EU directive in 2014 and will be applied on a national level in January 2018.

Three-Step Compliance

Complying with Dodd Frank and MiFID II, as well as similar legislation by other countries, can be divided into a three-step process. Preserving and retrieving interactions will require an approach more typical of mission-critical organizations. Redundancy and fail-safe procedures will be needed to ensure all transactional content is saved.

Second, reconstruction of all interactions related to a single transaction will mandate omni-channel recording including video, chat, email and screen activities. Comprehensive tagging with call-index data will be required for quick retrieval, and an integrated profile generator as well as CTI parameters will be useful in this regard. Automated systems will prove essential for larger organizations with an otherwise unmanageable number of interactions. Filtering of interactions through speech analytics such as keyword spotting, phonetic indexing and transcription serves a similar purpose.

Finally, any solution designed to comply with Dodd Frank and MiFID II must address a lack of compliance as well. Fraud prevention and risk control must detect any failure to comply with required practices. Emotion detection, for example, represents one way of searching for interactions gone wrong. Potential failures to comply must be quickly sent to supervisors on a near real-time basis.

Conclusion

The goals of MiFID II and Dodd Frank are laudable, and increased transparency in transactions will result in improved protection for all. Any solution must do more than comply with these regulations, however; it must provide a scalable system for futures ones as well. Cloud-based software can provide an ongoing technological refresh and ensure users only purchase functionality they really need.