Colum Gorman at Content Guru shares his tips for future-proofing investments in communications recording and storage solutions
MiFID II (the Markets In Financial Instruments Directive II) is an EU-wide standardisation and compliance framework for traders. Functions under MiFID II are carried out by EU authorities, principally the European Commission and the European Securities and Markets Authority (ESMA).
However, following EU-withdrawal, these no longer apply in the UK. Instead ESMA’s responsibilities have been transferred to the relevant UK regulators: the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA). The role of the Commission has transferred to HM Treasury.
Regulating recording and surveillance
While it is unclear whether the UK will decide to diverge from some parts of MiFID II, or from other parts of the EU’s capital markets framework, it is becoming clear that the UK will not remove itself from relevant articles for Recording and Surveillance.
This is very significant given the ongoing pace of EU regulatory change. In fact, UK firms could find themselves subjected to even greater levels of scrutiny as a result of Brexit. Trading as a Third Country within the EU means that the UK will now have to prove regulatory equivalence, and the complexity of this process is yet to be fully discovered.
Included within MiFID II are provisions that, in tandem with the European Market Infrastructure Regulation (EMIR), are intended to address the G20’s commitment to reform the derivatives market in the wake of the financial crisis of 2008.
As a member of the G20, the UK dismissed tackling these reforms in isolation. Instead it chose to adopt a European-wide policy, a decision which is highly likely to be upheld post-Brexit.
With this in mind, set out below are five key tips that could help firms future-proof their valuable investments in communications recording and storage solutions, to ensure the longevity of their investment, and avoid additional costs and disruption in the future.
1. Adopt a holistic approach to compliance
A considered approach to communications recording and storage solutions can provide forward-thinking firms with an opportunity to gain competitive advantage. Organisations should not only consider how to meet their compliance obligations today. They should also consider implementing open architectures to leverage powerful new enabling technologies, such as AI, that anticipate future regulatory developments.
Any required changes should form part of a unified strategy for meeting regulatory requirements. Overlapping compliance obligations can be identified across MiFID, Dodd-Frank, EMIR and REMIT and a unified approach to common requirements will allow firms to streamline compliance strategies across the business.
Implementing cloud technology that uses industry standards and supports organisational change provides businesses with a flexible platform that can adapt to the fast-evolving regulatory environment.
2. Employ open architectures
Communications recording and analysis technology is advancing at a dizzying rate. Based on current trends, today’s cutting edge innovations will be old news in less than two years.
Accepted industry standards will follow advancements in technology. Regulators and customers alike will expect organisations to keep up. This presents some difficult planning decisions for businesses preparing to meet new compliance obligations, especially for those that have already heavily invested in proprietary solutions.
Firms should be aware that proprietary solutions come with many disadvantages and may not be able to provide the most cost-effective or competitive long-term compliance strategies.
Proprietary or “closed-architecture” solutions may use API’s that only work with a specific vendor’s set of products or file formats, relying on communication protocols that are incompatible with third-party software. Therefore, customers who use solutions based on closed-architecture technology are entirely reliant on the proprietor to provide and maintain every aspect of their solution. This is known as “vendor lock-in”.
Proprietary software developers offer no commitment to keep their products on the leading edge of progress 100% of the time. Consequently users of proprietary systems are not only locked into those platforms, but they are also locked out of best-of-breed solutions and denied the competitive advantage offered by the latest innovations.
3. Don’t compress your audio data
Powered by advances in Automatic Speech Recognition (ASR), cutting-edge voice analysis technologies are undergoing exceptional growth and rapid take-up within the financial technology market.
These emerging technologies are providing powerful, next-generation compliance tools that deliver a real advantage. But organisations should be aware that ASR technology is setting a new benchmark in analysis capability and it’s only a matter of time until it becomes a standard requirement in compliance toolkits throughout the industry.
Businesses must act now to ensure that they are in a good position to easily integrate ASR technology into their compliance solutions in the near future. This starts with stopping the compression of audio data.
The higher the fidelity of the source recording, the greater the accuracy of the transcribed output file. But many widely used recording and data storage solutions employ high audio compression algorithms which make audio files smaller by removing data – audio data – from the file.
While this type of compression is very effective for reducing file sizes, the process of removing audio data reduces its overall fidelity and can significantly increase transcription word-error rate. Once compressed, this lost fidelity cannot be retrieved.
Organisations would be wise to consider recording and storage solutions that use lossless formats if they wish to take full advantage of ASR and other emerging next-generation analysis technologies.
Businesses can improve transcription accuracy even further by making recordings in stereo. Stereo recording allows the two sides of a conversation to be separated, which eliminates transcription errors that can occur when individuals talk over each other.
Over the coming years, ASR performance will continue to advance. New algorithms will inevitably become available that enable organisations to reanalyse existing recordings with improved transcription accuracy and increased analysis potential. These opportunities will be limited if recorded audio is compressed.
4. Prepare for increased data storage requirements
Far-reaching provisions that regulate everything from best execution and reporting procedures, to conduct monitoring and risk management will see organisations becoming increasingly reliant on data-heavy compliance strategies.
The increase in demand for comprehensive, high-quality data will in turn bring with it the need for robust, high-capacity storage solutions. Organisations should ensure that their systems utilise compliant WORM (Write Once Read Many) data storage with sufficient capacity to retain significant volumes of electronic communications data, including uncompressed stereo voice data, for the regulated period.
5. A unified communications recording and analysis solution
In addition to employing open architecture technology and adopting a holistic approach to compliance, organisations should consider the benefits and savings offered by a unified communications recording and analysis solution.
A unified solution provides a platform that takes full advantage of best-of-breed technologies and benefits from having resources such as search-and-replay, e-discovery and end-to-end trade reconstruction operating within a single system. Unified solutions allow firms to develop cost effective, enterprise-wide compliance and data management policies that eliminate the problems associated with a disjointed approach.
A disjointed approach results in organisations working across multiple systems, each running costly and overlapping solutions that require divided and often disparate management policies.
A unified approach allows firms to manage their assets and resources much more efficiently, delivering more robust policies and fully optimised value across their business, whilst maximising effective use of compliance officer time.
Colum Gorman is Business Development Director at Content Guru
Main image courtesy of iStockPhoto.com