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."
