The insider trading trial of Rajat Gupta, a former Goldman Sachs board member, gets under way in New York this week. Phone recordings are set to play a key part in this case, as they did in the earlier related trial of Raj Rajaratnam.

Preceding the start of the Gupta trial, the Financial Times reported (http://on.ft.com/Lbmhn4) that Federal prosecutors and defence lawyers argued whether certain wiretaps could be admissible as evidence. Having concluded that the conversations “reeked of knowledge and intent” presiding Judge Rakoff, permitted them.

For those familiar with the mores of US regulators, there is a bigger question than whether or not Gupta is guilty of insider trading. Why were recordings between a senior banker and trader not available as a matter of normal regulatory procedures? And why, as a result, are millions of US tax payer’s dollars being wasted on authorising and running covert wiretaps and then having legal teams arguing over their admissibility in court?

For too long the Securities Exchange Commission (SEC) has refrained from including telephone communications in their recordkeeping requirements that are a central platform of its supervisory controls. This is in distinct contrast to major regulators in other jurisdictions, such as the UK Financial Services Authority and the IOSC (International Organization of Securities Commissions), the worldwide regulators’ own industry body.

Perversely the absence of a legal requirement to record calls is driving a wedge through banks’ own internal governance. As I wrote last year, in such a highly litigious environment firms who had previously recorded trade-related calls for dispute resolution, service quality assurance and so forth, are now switching off recorders for fear of being caught with incriminating evidence.

This situation may be about to change. Under Dodd Frank legislation, the SEC and CFTC should publish rules requiring firms to expand incorporate telephone records recording for Swap dealing before the end of the year.

The question remains whether the SEC will extend this requirement to all traders or simply those that indulge in equity swap dealing. Or will they continue to pander to the banking lobbyists, and let tax payers pick up the cost and risk of a ineffective regulatory control.