For most pieces of regulation covering the recording of business telephone calls, the focus is very much on setting restrictions on what can be recorded and how the recordings are used. Data protection laws, PCI-DSS, HIPAA and so on, all aim to limit the scope of call recording to protect privacy and guard against identity theft.
But in the financial service industry, things are a little different. Indeed, rules set out by the Financial Conduct Authority (FCA) in its Conduct of Business Sourcebook (COBS, otherwise known as ‘The Handbook’) actually demand member organisations do more call recording, rather than less.
In this short guide, we will have a look at exactly what the FCA regulations say, who they apply to, the rationale behind them and what they mean for affected parties in practice.
What is the FCA?
The Financial Conduct Authority is an independent regulatory body for the UK financial services industry. Funded through subscriptions from 56,000 members organisations, the FCA is licensed by UK government to oversee compliance with all legal instruments relating to the marketing and sale of financial products. Its overarching aim is to deter, detect and prevent abuse and malpractice in the financial markets. The rules on acceptable conduct and practice are all summarised in the COBS handbook.
What does the FCA have to say on call recording?
The rules on call recording are contained in COBS 11.8. The FCA summarises the regulations thus:
“The rules in COBS 11.8 oblige firms to retain records of specific telephone conversations and electronic communications of client order services that relate to the reception, transmission and execution of client orders and proprietary trading. It includes communications that are intended to result in a transaction, even if ultimately they do not.”
What this means is that any telephone conversations relating to the sale, marketing and promotion of so-called financial instruments must be recorded by the vendors. Financial instruments are any of a number of commercial financial products, including equities, loans, bonds, stocks, derivatives and currency.
The last line of this paragraph is significant, stating that calls must be recorded even if they do not lead to a sale. This broadens the scope of the requirement to record, for example to include instances when a customer calls up asking for information about an available product.
Who do the rules apply to?
Banks, stockbrokers, investment managers and commodities dealers are all required to follow these regulations. This translates to about 30,000 organisations at present, mostly City traders.
It is important to note that the regulations do not just apply to calls between a firm and their clients. As financial organisations often act on behalf of their clients when dealing in stocks and derivatives, the rules also apply to any calls made between firms when the intention is trade on behalf of a client.
What is the thinking behind these rules?
The regulations on call recording were introduced in 2009, not long after the financial industry was widely accused of bringing the global economy to its knees by playing fast and loose with the markets. The fact is, the financial instruments market is hugely complex, and over the past decade or two, the industry has been rocked by scandal after scandal involving firms manipulating the markets or doing deals with each other to stack the benefits in their favour.
