From March 2009 firms will have to record all telephone conversations and electronic communications involving client orders for the equity, bond and derivatives markets and retain the files for six months.

Electronic communication includes e-mail, instant messaging and faxes. However the FSA says it has applied an exemption to recording conversations and communications - except e-mails - on mobile phones and other handheld devices because the technology required to tape and store mobile phone conversations is new and untested.

However the exemption will be reviewed in 18 months' time, in line with an EU review regarding the addition of a taping requirement under the Markets in Financial Instruments Directive (MiFID).

The introduction of the taping programme is part of the FSA's efforts to combat market abuse, particularly insider dealing and market manipulation.

"Some of the most valuable evidence in investigating market abuse is that relating to the point at which transactions are undertaken: in particular taped conversations and records of electronic communications," says the FSA's policy statement.

The FSA settled on a six month retention period after consulting the industry last year. The regulator had originally proposed keeping calls and electronic communications for three years. The authority says the period was reduced after it "conducted a further review of the cost-benefit analysis and discussed with the industry the scope and practicalities of the new rules".

However the FSA has estimated that the programme will cost £14 million to set up and then between £6 million and £11 million per year afterwards.

This is considerably higher than the FSA's original estimates which included a £3 million - £4 million set up cost, with annual ongoing expenditure of £3.5 million to £4.5 million.

Read the FSA's policy statement here: