Private Banking, MiFID II, Coronavirus and Remote Work: Proving Telephone Investment Orders and the Recording Obligation

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The principle

The MiFID II Directive requires firms providing investment services (executing orders or investment advice, private banking style) to keep, as evidence, a record of every investment service provided and every investment activity or transaction. This includes recording investment orders placed by telephone between an investor client and the banker. As soon as a telephone conversation concerns, or at least relates to, the reception, transmission and execution of client orders, it must be recorded as evidence and kept for five years.

What if the banker works remotely and a client calls about an investment?

The investment firm must take reasonable steps to record telephone conversations and electronic communications between a private banker and client, using equipment provided by the firm to an employee or contractor. Firms must also take reasonable steps to prevent employees from using, for example, a private mobile phone unable to record or copy conversations. But with the coronavirus crisis and mandatory teleworking for most investment-services actors, some firms may be unable to meet this recording obligation, even taking reasonable steps.

ESMA’s answer: eased requirements and mandatory note-taking

On 20 March, the European Securities and Markets Authority (ESMA) accepted that, in this period, investment firms might face obstacles making it impossible, despite the law, to record telephone conversations containing orders on financial instruments. Failing recording, ESMA recommends that firms record the substance of the conversations in written minutes, stressing the information to be given to the client, and that controls on telephone orders be reinforced in parallel. During lockdown, Belgian investment firms may therefore apply by analogy Article 26, § 5, paragraph 4 of the Act of 25 October 2016 and record in writing, in minutes or notes, the substance of a telephone conversation with the client, as evidence of the investment operation discussed or placed. This alternative may not, of course, be a pretext for firms to ignore their obligations, and must be used only because of the exceptional health circumstances.

What about proof? The investor must remain vigilant and responsible

The proof of investment operations requested by a client may appear one-sided. The recording obligation aims notably to protect the client and ensure the firm properly executes the orders given. Yet order books and written reports kept by the banker have already been accepted as fully admissible and sufficient evidence, validated by the courts. These questions are generally settled contractually. The client must remain vigilant: as an investor, it is for him to check his accounts and the evolution of his investments regularly, and to dispute immediately any operations that seem incorrect. Disputing an operation late, once a fall in the investment’s value has been recorded, risks being seen as a dispute prompted by the unsatisfactory result rather than by any actual incorrectness.

This article is a translation. Only the French version is authoritative. It is provided for information purposes and does not constitute legal advice.