Brokers trading in stocks, shares, bonds and derivatives will all have to record email and phone transactions from March of next year after the FSA issued its order. It says the move is designed to deter and detect abuses of markets.
"Preventing, detecting and deterring market abuse is one of our key priorities. However, market abuse is one of the most difficult offences to investigate and prosecute," said the policy statement outlining the FSA's new requirements. "Good quality recordings of voice conversations and of electronic communications help firms and us detect and deter inappropriate behaviour."
The FSA said that demanding taping would have benefits across the industry, but especially in fighting market abuses.
"Introducing a taping requirement may raise the standard of behaviour by those using telephone lines and means of electronic communication which will be taped for the first time," it said. "It may also increase the quality and volume of information available in pursuing market abuse cases."
The FSA said that the new rules apply to "all firms that receive client orders and negotiate, agree and arrange transactions across the equity, bond and financial commodity and derivatives markets".
After receiving feedback from the industry the FSA made significant changes to is original proposal, it said, including a reduction in the length of time for which recordings must be kept from three years to six months.
The regulator said that recordings of conversations could be crucial in proving hard-to-establish facts in difficult cases.
"Crucially, the evidence that might be obtained from tape recordings may not be available by other means," said its policy document. "The advantage of telephone evidence over documentary evidence [or] oral testimony is that telephone evidence more often helps to show ‘knowledge’ and ‘intent’ – matters that are critical in terms of enforcement action but which are not always easily established."
The recording of conversations is permitted under the Lawful Business Practice Regulations, said privacy law expert Rosemary Jay of Pinsent Masons, the law firm behind OUT-LAW.COM.
"Companies are allowed to record to ascertain compliance with regulatory practices and procedures, but they do have to have told both parties," said Jay. "They're likely to do this through recorded notices on the phone lines."
