U.K. regulators require trader’s cell-phone calls to be recorded

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The Financial Services Authority (FSA) proposed regulation that would require traders’ cell-phone calls to be taped in an effort to limit insider trading. More details on the rule scheduled to be published by the U.K. regulators as soon as this week.

Originally, the FSA made an exemption for cell calls when it required banks and brokerage firms to record phone conversations in March 2008. But it has now decided to include such calls in its rules.

As the result, from November next year firms will have to record and store for 6 months any “relevant communications made with, sent from or received on cell phones and other hand-held electronic communication devices.”

A relevant communication is one where an employee discusses receiving, executing or arranging client orders for securities trading. It doesn’t apply to corporate finance business or corporate treasury functions. The rule will only apply to phones and devices that firms give their employees for business purposes.

Firms will also have to record calls that employees make when overseas, unless local laws prohibit the recording. The regulators predict that the rule change would require the monitoring of 16,000 cell phones.

Galleon Influence

The U.S. insider-trading case against Galleon Group LLC’s chief executive officer, Raj Rajaratnam, was brought using evidence in part from cell-phone conversations the government got permission to wiretap. The FSA is increasing efforts to prosecute insider trading after criticism from lawmakers that it wasn’t doing enough to prevent the crime. The Galleon case was certainly an influence to FSA proposed rule in its goal to toughen up on market abuse.

Privacy Rights

FSA argues that companies should make sure employees don’t use private phones or e-mail for business to circumvent the recording. To ease the burden of compliance with the proposed rule, banks would have the option of banning employees from using cell phones for business use.

With many people having a single cell phone for both business and personal use, organizations will need to establish a call recording protocol that does not infringe on an employee’s right to privacy.

According to various news sources, the FSA is currently prosecuting 11 people for trading with insider information and has convicted six men for the crime since March 2009. The agency never prosecuted a criminal insider-trading case before 2008.

Anna Timone (195 Posts)


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