30 July 2014

Curtis Nash

Curtis Nash - Cognia

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Financial Services Regulation

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Mobile recording: Should compliance officers be frightened?

06 September 2011  |  4625 views  |  0

Last week saw the UK Financial Service Authority’s (FSA) latest win in its war against market abuse when it announced that it had imposed an £8m fine on Swift Trade for layering—a practice of placing large orders that the trader has no intention of completing.

This is the eleventh insider-dealing conviction since March 2009 when Hector Sants, the FSA's Chief Executive, made clear its commitment to take a tough stance to market abuse, warning that: "people should be very frightened of the FSA".

Scared of what?
If the introduction of mobile phone recording is anything to go by—FSA-regulated investment banks, brokers and dealers have until 14 November this year to ensure “relevant” conversations on mobile phones are recorded—resistance to more oversight continues.

Maybe recording of mobile phones has pricked a nerve among banks keen to avoid further regulatory intrusion. There has been persistent lobbying of the FSA, even in this late hour, from firms trying to defer the regulation. (Although I was amused to learn that the instigator of the latest approach was, in fact, a telco vendor arriving late to the party.)

It ain't me babe
Access to a firm’s voice recordings has an important place in the FSA’s armoury to fight their war against market abuse. It is these, often informal, communications that can enable them to prove “knowledge” and “intent” and thereby bring investigations to a successful and rapid conclusion.

The prosecution of Winterflood Securities, who were fined over £4million,  serves to highlight this on several levels. Reviews of the case by Herbert Smith, and Hogan Lovells showed the following:

-     The FSA’s inability to prove that Winterflood and its traders intended to manipulate the markets almost certainly contributed to the protracted nature of the case;
-    In the event, the FSA succeeded on the basis that ignorance is not an acceptable defence. Although not surprising it is a reminder that the unwary can inadvertently commit market abuse even if they do not intend to do so;
-    The traders communicated with their broker by mobile phone in order to avoid trading discussions being taped.

Keep IT honest
For those firms that must implement the FSA’s mobile-recording regulation, there is no room for complacency.

At the moment, much of the focus of those evaluating mobile recording systems is on price and user experience—messing with traders’ mobiles is probably a scarier thing for IT than the less immediate threat of Hector and his team.

But once 14th November passes, mobile voice, voicemail and text messages will become another conventional source of data to which the FSA’s broader conduct-of-business rules will apply. Completeness of records, reliability of recording when roaming, avoiding the vulnerabilities of conference-call recording methods, the ability to readily search through and manage records, will all become the critical issue.

As I have previously blogged, there is a lot more to mobile recording than meets the eye. Solution reliability and capability varies hugely, as does total cost of ownership.

To avoid any frights, make sure your IT team selects a vendor with the credentials and capability to deliver a complete solution today, that can properly support it, and will develop it with both the trading room’s and your compliance team’s needs firmly in mind.

TagsDealing roomsWholesale banking

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Curtis Nash

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CEO

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Cognia

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London

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Founder and CEO of Cognia (formerly Compliant Phones), a provider of global communications servic...

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