FSA Consultation On Mobile Phone Taping To Tackle Market Abuse

Financial Services Authority Consultation

19.03.2010

The Financial Services Authority consultation seeks views on a proposal to remove the exemption that excludes mobile phone companies from the requirement to record "relevant communications" and keep them for six months. Rules, which became effective from March 2009, were aimed mainly at tackling market abuse so mobile phone companies were excluded primarily because of concerns that the technology to capture these communications was insufficiently developed. Removing this exemption would require firms to tape relevant communications on mobile phones issued by the firms for business use. Comments are requested by 14 June 2010.

The overview of the consultation paper provides as follows:

1.1 - In March 2008, the FSA published rules (PS08/1) on recording voice conversations and electronic communications1 ('the taping rules'). These rules require firms to record 'relevant communications' and keep them for six months. ‘Relevant communications’ refer to voice conversations and other electronic communications that involve the receipt of client orders and negotiating, agreeing and arranging transactions in the equity, bond and financial and commodity derivatives markets. For more detail on the scope of the Conduct of Business Sourcebook (COBS) 11.8 taping rules, see the 'scope of proposal section below.

1.2 - These rules, which became effective from March 2009, were aimed mainly at tackling market abuse – although our taping rules also assist us in our conduct of businesses supervision – by ensuring we have access to high quality, contemporaneous evidence to help monitor, investigate and prosecute such cases.

1.3 - Mobile phones and mobile communications (except emails) were excluded from these 1.3 rules. Their exclusion was primarily based on concerns that the technology to capture these communications was insufficiently developed.

1.4 - However, we stated in PS08/1 that we would review this exclusion towards the end of 2009. As part of this review we have met with technology suppliers, trade associations and economic consultants to test the feasibility (both from a technology and cost perspective) of applying a taping requirement to mobile phones.

1.5 - This Consultation Paper (CP) seeks feedback on a proposal to remove the exemption for relevant communications (except emails) '…made with, sent from or received on a mobile telephone or other mobile handheld electronic communication device.

1.6 - Removing this exemption would require firms to tape relevant communications on mobile phones issued by the firms for business use. We also propose to introduce a rule requiring firms to take reasonable steps to prevent employees or contractors from using private communication equipment (which may not be recorded due to privacy laws) to make such communications.

1.7 - Should a decision be taken to remove the exemption, we would allow a sufficient transition period for firms to make the necessary changes. We anticipate a transition period of a year from the time a decision is taken to alter the rules (which we would not expect to happen until Q4 2010) to implementation by firms.

More information on the FSA Consultation can be found at this link:  http://www.fsa.gov.uk/pubs/cp/cp10_07.pdf

If you or your firm have any questions regarding the issues raised in the article regarding FSA Enforcement & Financial Division investigations or market abuse, please contact Sarah Wallace on 0370 1500 100 or 020 7421 3883.