Recording legislation for Banking and Corporate finance
26 October 2009
A case, as recent as September this year, saw a major blue chip bank get a £2.45 million fine for failing to report trades properly. The reports are used by the FSA to detect and investigate any market abuse, such as insider trading and market manipulation. The watchdog said it had discovered discrepancies in the company's data, while reviewing a suspected incident of market abuse by a third party.
The fine was the highest ever handed down for such an error. The FSA added that following a subsequent review of the company's transaction reporting methods, it found they did not have adequate systems and controls in place to meet reporting rules. Alexander Justham, FSA director of markets, stated that the fine handed out was significant because of the 'serious nature' of the breaches. The FSA added that the breaches occurred despite repeated reminders that they needed to provide accurate data.
All of this illustrates the ongoing need to ensure that our recording and reporting systems need to be kept up to date and that the FSA are prepared to come down heavy on companies ignoring recommendations and directives. The most recent document was the FSA's follow on from their MiFID document, the NEWCOB consultation paper which sought views on the proposals reforming the remaining elements of the Conduct of Business (COB) regime that are outside the scope of the Markets in Financial Instruments Directive (MiFID). The scope of MiFID is narrower than the scope of designated investment business as a result; there are a number of areas of business covered by the COB sourcebook which are outside the scope of MiFID..
The Consultation Paper addresses the remaining COB requirements which, in the main, concern 'Specialist Regimes' - a tailored set of requirements for particular, often narrow classes of business. It has been considered whether and to what extent each of these should be preserved given other developments such as the creation of NEWCOB and the move to Principles-based Regulation (PBR). Of relevance to us are the proposals to introduce a telephone recording requirement that could apply to both MiFID and non-MiFID. To recap the main findings were:.
That firms record and store conversations for three years and in addition to the usual Banks a Stockbroking firms this should be extended to include Insurance companies and hedge Funds..
Sections from Chapter 19 of: Financial Services Authority Conduct of Business regime: non-MiFID deferred matters (including proposals for Telephone Recording) May 2007 19.4 We propose firms be required to record telephone lines used for voice conversations that involve the receipt of client orders and the negotiating, agreeing and arranging of transactions across the equity, bond and financial commodity and derivatives markets, and to retain electronic communications relevant to these activities. The term electronic communications has wide application and includes fax, e-mail, chat and instant messaging but, obviously, is not limited to those. The FSA applied for an exemption to recording voice conversations on mobile phones and other handheld devices for the next 18 months, claiming that technology required to record and store mobile phone conversations is new and untested. At the time of writing this may have been the case, however since then many solutions have been devised and tested and are available for a timeline that is now less than 12 months away..
The next stage in a process which started in November 2007 with the FSA’s consultancy paper 07/09 Conduct of Business regime: non-MiFID deferred matters, which stated "If mobile phones are used in connection with orders, firms will have to record conversations, or, change their working practices." Then as recent as March this year the FSA’s most recent paper "08/1 Telephone Recording: recording of voice conversations and electronic communications," concluded that with regard to Mobile Recording "we believe there is little reason for an extended moratorium on requiring it." A full version of this document can be viewed here - http://www.fsa.gov.uk/pages/Library/Policy/Policy/2008/08_01.shtml. Steven hanks of the FSA furthermore concluded that during June 2009 they expect to develop detailed requirements for consultancy work and, following a tender process, to award the consultancy contract in early August. Fieldwork by consultants and the FSA will take place in September and we will consider the results of this work at the beginning of October 2009..
The very simple fact of the matter is that there are 255,000 mobile handsets under contract in the financial industry in the UK. The rules are very clear that in many instances these devices should not be used to conduct business..
Sinclair Voicenet have undertaken extensive research with our technology partners to ensure we can provide a complete set of solutions that will comply with all current and future legislative directives. If you would like to discuss the available options please contact our sales office..