The requirement to record and keep wireline phone calls and emails came into force at the beginning of this month in order to fulfill the Financial Services Authority’s (FSA) obligation to tackle instances of market abuse, such as insider trading, in compliance with the EU’s Market Abuse Directive.
The regulatory body’s initial consultation with the sector, carried out in 2007, covered both mobile and fixed-line calls. At first, companies argued that mobile recording was not feasible; then, when it became clear that recording technology was in fact available, they argued that it would be too expensive. In a policy statement on the subject in 2008, the FSA said that the technology for mobile call recording was not sufficiently proven, even though the costs were not actually that dissimilar to fixed-line, and so it declined to impose the requirement at that time.
However, the FSA has revealed that it will consider the possibility of including mobile calls in a review of its regulations in the fourth quarter of this year. Datamonitor believes it is logical that, at some point, regulators should extend the voice call recording requirement to mobile phones, given the dominance of this mode of communication in both the personal and business spheres.
The UK is by no means the only country where call recording is required of the financial sector. France, Germany, Italy and Spain already had some form of taping obligation, which varies in scope between the jurisdictions. Therefore, other regulators will watch closely if the FSA extends taping requirements to mobile calls and, depending on the success of the move, the FSA could set a trend, at least in other major markets around the EU. In the US, the SEC has so far restricted its recording requirement to fixed-line and email, so it can also be expected to follow any move by the FSA with interest.
Seasoned FSA-watchers in the areas of certification believe that the authority will now make the extension, either in this year’s regulatory review, or in the next one (Q4 2010), and at least two vendors are promoting their ability to enable mobile recording in a non-disruptive fashion.
The companies in question are Obsidian Wireless, whose technology enables the actual capture of the call traffic, and Open-Tec, which provides the back-end storage with guaranteed inviolate copies of the calls. The clever part of the combined Obsidian/Open-Tec offering is its ability to capture calls without the need for putting any client software on the phone itself. Instead, the SIM card that identifies the phone to the mobile operator’s network is located on a gateway appliance sitting on the corporate network (rather than in the actual device), from where it can forward calls to the phone while at the same time passing a recorded version to one of Open-Tec’s CStore devices, which the company refers to as a compliant repository.
By virtue of the relocation of the SIM card, the offering can apply to corporate or private mobile phones although, clearly, the corporate employee will need to agree to having his or her mobile calls recorded in this way. At the moment, most institutions actually ban the devices altogether, so an extension of the recording requirement would at least enable them to offer mobile connectivity to their high-powered staffers. They could even mandate that employees only use corporate mobiles.
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Datamonitor expects to see other vendors offering mobile call recording, particularly if the FSA moves to extend the requirement this year. The most obvious candidate is Nice Systems, the Israeli ISV that provides a lot of the call recording capabilities for fixed-line communications in call centers, with financial sector customers that include JPMorgan, American Express and Citibank Hong Kong. It will, however, be interesting to see how it addresses the need for non-invasive technology.
Although no proposed solution is foolproof, by creating a legal framework for mobile call recording, the authority would enable institutions to impose some form of contractual requirement whereby, if traders or other employees were found to be circumventing the requirement, they could be subject to disciplinary action.
