The MiFID II & FCA Compliance Burden

Financial services call centres operating under MiFID II and FCA Conduct of Business (COBS) rules face some of the most stringent compliance requirements in any industry. The regulatory framework is comprehensive, detailed, and unforgiving—with violations carrying fines ranging from £500,000 to £10M+.

The core regulatory challenge: MiFID II requires firms to record all advisory conversations and demonstrate suitability for every investment recommendation. Manual compliance monitoring cannot achieve this systematically across thousands of calls.

MiFID II Recording & Monitoring Requirements

What Must Be Recorded and Monitored

MiFID II Article 16(7) mandates recording of all conversations "likely to result in a transaction" in financial instruments. This encompasses:

• Investment Advisory Calls: Any call recommending specific investments
• Order Reception: Calls where clients instruct trades
• Portfolio Management: Discussions about ongoing investment management
• Structured Product Sales: Complex product explanations and suitability
• Discretionary Management: Authority grants and investment policy discussions

Retention Requirement: 5-7 years depending on jurisdiction and product type

FCA Position: Recordings must be "readily available" to regulators and produce-able within hours of request during examinations.

The Manual Monitoring Problem

Traditional compliance teams review 2-5% of MiFID II calls. This means 95-98% of advisory conversations never receive compliance review.

Key MiFID II & COBS Compliance Requirements

1. Know Your Customer (KYC) Verification

Regulatory Requirement: Verify customer identity and gather information about financial situation, knowledge, experience, and investment objectives.

What AI Monitors:

• Agent asks required KYC questions ("What is your investment experience?")
• Customer responses recorded and analyzed for completeness
• Verification questions appropriate for product complexity
• Updates to existing KYC when circumstances change

2. Suitability Assessment (Advised Sales)

Regulatory Requirement: Recommendations must be suitable based on customer's knowledge, experience, financial situation, and objectives.

What AI Monitors:

• Agent recommendations align with stated customer objectives
• Risk tolerance matches product risk profile
• Investment time horizon compatible with product liquidity
• Concentration risks addressed for large positions
• Agent provides clear rationale for "why this product for this customer"

3. Appropriateness Assessment (Execution-Only)

Regulatory Requirement: For non-advised (execution-only) sales of complex products, assess if customer has necessary knowledge and experience.

What AI Monitors:

• Appropriateness questions asked for complex instruments (derivatives, structured products)
• Warning issued if customer lacks knowledge/experience
• Customer acknowledgment of warning captured
• No appropriateness assessment for simple instruments (equities, bonds)

4. Risk Disclosures

Regulatory Requirement: Clients must receive appropriate risk warnings before investing, particularly for complex or high-risk products.

What AI Monitors:

• "Investments can go down as well as up..." - Standard risk warning
• "You may get back less than you invested..." - Capital at risk disclosure
• "Past performance is not indicative of future results..." - Performance disclaimer
• Product-Specific Risks: Liquidity risk, credit risk, market risk, leverage risk
• Timing: Disclosures provided before transaction recommendation, not after

5. Cost & Charges Disclosure

Regulatory Requirement: All costs and charges must be disclosed upfront, including product costs, platform fees, and advice charges.

What AI Monitors:

• Total cost of ownership disclosed (not just headline fee)
• Ongoing charges figure (OCF) communicated
• Transaction costs explained
• Impact on returns illustrated (£ or %)
• No hidden fees or surprises

6. Inducements & Conflicts of Interest

Regulatory Requirement: Disclose if firm receives commission or other inducements that might influence recommendations.

What AI Monitors:

• Commission arrangements disclosed when applicable
• Conflicts of interest identified and managed
• Independence status clarified (independent vs restricted advice)
• Best execution policy explained

Real-World Case Study: Regional Wealth Manager

Organization Profile

Firm Type: Independent wealth management firm
Advisory Team: 25 advisors + 15 paraplanning support
Annual Advisory Calls: 18,000 client interactions
AUM: £1.2B across 2,400 clients
Regulatory Status: FCA authorized, MiFID II investment firm

Before Regulativ AI

Compliance Monitoring Approach:

• Manual Reviews: 3 compliance officers reviewing 5% of calls (900 annually)
• Annual Cost: £280,000 (compliance salaries + recording infrastructure)
• Coverage: 900 of 18,000 calls = 5%
• Detection Lag: Average 6 days from call to compliance review
• FCA Findings (Last Examination): 12 deficiencies noted, improvement required

After Regulativ Implementation (18 Months)

FCA Examination Result

Previous Examination (Before AI): "Firm's sampling-based approach provides insufficient assurance of systematic compliance. Several calls reviewed contained suitability gaps and incomplete risk disclosures. Rating: Needs Improvement."

Latest Examination (With AI): "Firm demonstrates comprehensive oversight via AI monitoring of 100% of advisory calls. Systematic detection and correction of compliance issues. Excellent audit trail and management information. Rating: Good."

Regulativ's MiFID II & FCA Compliance Templates

Pre-Configured Rule Sets

Regulativ includes industry-standard regulatory templates, deployable in minutes:

Custom Rule Creation

Beyond templates, firms can create bespoke compliance rules matching internal policies:

• Firm-Specific Phrases: Required disclosures unique to your firm
• Product Restrictions: "Product X cannot be sold to customers aged 75+"
• Concentration Limits: "Flag if single investment exceeds 15% of portfolio"
• Authority Levels: "Investments >£100K require senior advisor approval"
• Cooling-Off Reminders: "Ensure client knows they have 14-day cancellation right"

Senior Manager & Certification Regime (SM&CR) Evidence

The SM&CR Accountability Challenge

Under SM&CR, senior managers are personally accountable for compliance within their areas of responsibility. The FCA expects managers to demonstrate they took "reasonable steps" to prevent breaches.

The Question Every SM&CR Senior Manager Must Answer: "What reasonable steps did you take to ensure MiFID II compliance across your advisory business?"

Insufficient Answers (Manual Monitoring)

"We reviewed 5% of calls through manual sampling."
FCA Response: Not reasonable—95% blind spot is inadequate oversight.

"We relied on advisor attestations and annual compliance reviews."
FCA Response: Reactive, not proactive. Insufficient for systematic risk management.

Compelling Answer (AI Monitoring)

"We implemented AI compliance monitoring analyzing 100% of advisory calls against MiFID II and COBS requirements. We receive real-time alerts for any violations, maintain comprehensive audit trails, and demonstrate systematic corrective action. Here's 18 months of data showing our compliance posture."

FCA Response: Reasonable steps clearly demonstrated. Comprehensive oversight evidenced.

Regulatory Report Generation

Automated Compliance Reporting

Regulativ generates FCA-ready compliance reports automatically:

Monthly Compliance Packs Include:

• Executive Summary: Overall compliance posture, trends, key risks
• Violation Details: Every breach detected, severity, corrective action taken
• Advisor Scorecards: Individual compliance performance metrics
• Product Analysis: Compliance by product type (equities, funds, derivatives, etc.)
• Customer Segmentation: Outcomes by customer demographics and vulnerability
• Trend Analysis: Month-over-month improvement or degradation
• Training Needs: Identified knowledge gaps requiring remediation

Regulator-Ready Evidence Packs

When FCA requests information during examinations:

• Instant Retrieval: Search 100% of calls by advisor, product, date, customer, keyword
• Filtered Views: "Show all high-risk fund sales to customers aged 70+ in Q4"
• Compliance Overlays: Every call tagged with compliance assessment results
• Audit Trails: Complete record of detection, escalation, resolution
• Export Capabilities: CSV, PDF, audio + transcript packages for regulator delivery

Implementation for MiFID II Firms

Day 1-2: Regulatory Template Configuration

Setup Activities:

1. Select applicable regulatory templates (FCA COBS, MiFID II, PRIIPs, etc.)
2. Map your product catalogue to regulatory classifications
3. Configure risk disclosure requirements by product type
4. Set up suitability assessment criteria
5. Define escalation workflows for violations
6. Test with 100 historical calls to validate accuracy

Week 1: Baseline Assessment

Understanding Current Compliance Posture:

• Process 30 days of historical calls through AI
• Generate baseline compliance report
• Identify systemic issues requiring immediate attention
• Compare AI findings to manual compliance reviews (validation)
• Fine-tune sensitivity and reduce false positives

Week 2-4: Full Production Deployment

Operational Integration:

• Activate real-time monitoring for all advisory calls
• Train compliance team on alert triage and investigation
• Establish supervisor intervention protocols
• Configure management dashboards and reporting
• Integrate with CRM for client-level compliance tracking
• Establish monthly governance review process

Conclusion: MiFID II Compliance as Competitive Advantage

MiFID II and FCA COBS compliance is complex, detailed, and high-stakes. Firms that achieve systematic, comprehensive compliance gain:

• Regulatory Confidence: Strong FCA relationships built on demonstrated control
• Reduced Examination Risk: Fewer findings, shorter examinations, better ratings
• Customer Trust: Consistent good outcomes build loyalty
• Advisor Protection: Clear guidance prevents inadvertent violations
• Market Differentiation: "Zero FCA findings" becomes competitive advantage

The choice is clear: Continue sampling 5% of calls and hoping for the best, or deploy AI that monitors 100% of advisory conversations and provides genuine regulatory confidence.