Out-Law / Your Daily Need-To-Know

Mobile phones no longer exempt from trader phone tapping rules

Out-Law News | 17 Nov 2011 | 12:27 pm | 1 min. read

Investment banks and financial traders in the UK must now record the mobile phone conversations of their staff following the closure of a regulatory loophole.

A policy statement (26-page / 221KB PDF) by the Financial Services Authority (FSA) said that firms will have to record conversations relating to certain transactions and store them for a period of six months.

The policy removes an exemption from the existing rules requiring firms to monitor landline calls and other forms of electronic communication, including email.

A new rule also requires firms to take "reasonable steps" to ensure that relevant communications do not take place on private communication equipment, to avoid "privacy issues associated with recording private communication equipment".

In its statement the FSA said that removing the exemption, which applied to mobile phones and mobile communications except emails, would provide "an additional source of contemporaneous voice conversations and electronic communication evidence".

"This can also help us to counter market abuse, one of our key priorities," the statement said.

FSA rules on recording voice conversations and electronic communications originally came into force in 2009. The rules require firms to record "relevant conversations" and keep them for six months.

Relevant conversations are defined as voice conversations and other electronic communications that involve the receipt of client orders and negotiating, agreeing and arranging transactions in the equity, bonds and financial commodity and derivatives markets.

The FSA originally excluded mobile phones and mobile communications from its recording requirements primarily due to concerns that the technology which could capture them was not sufficiently developed. However, it said that it would review this exclusion towards the end of 2009.

"With the exemption in place, individuals can currently divert fixed lane traffic onto an un-taped mobile line. By removing the scope to scope to circumvent the rules, we would enhance our market monitoring and enforcement functions," the FSA said in its initial proposal to remove the exemption.

The regulator said that it had met with technology suppliers, trade associations and economic consultants to check that its proposals were feasible from both a technology and cost perspective. The cost of the new law rule will be met by financial services firms.

The rules have been introduced in advance of a potential taping requirement being introduced at a European level. Current EU rules give member states discretion to decide if investment firms have to record telephone conversations or electronic communications involving client orders. However, a mandatory requirement could be introduced as part of a review of the Markets in Financial Instruments Directive.

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