Half of UK traders still flout mobile voice recording rules
More than two years after the UK’s FSA introduced rules on mobile call recording for financial institutions, more than half of those affected still have not rolled out a solution – leaving many at risk of enforcement action, according to a new report by analyst firm Ovum and computer telephony specialist Teleware.
In the UK, call recording was introduced by the UK FSA in November 2011. The US has introduced similar rules under the Dodd-Frank Act, while the European Union is also set to follow suit with its upcoming MiFID II legislation. The research paper, Mobile Call Recording in the Financial Markets: Assessing the Impact and Opportunities Created by Changing International Regulation, says that in the UK there is a significant mismatch between the obligation in the regulation and the reality on the ground.
When the UK rules were introduced, the FSA estimated that there were 22,000 mobiles that would need to be recorded, based on figures drawn from a 2008 survey which relied on banks submitting their own estimates. But there was never a final consensus on the number, and a separate TeleWare study suggested the true figure could be as high as 45,000. Ovum research in late 2012 and early 2013 found that no more than 18,000 phones were actually being recorded, and perhaps as few as 9,000. TeleWare agrees that no more than half the target number of phones are currently being recorded.
Of those that didn’t record their calls, 24% mistakenly thought they were not covered by the rules, 20% admitted not all mobile phones are compliant, 16% think they are too small to matter to the FCA, 18% mistakenly think they don’t need to record the calls because they complete all sales with printed contracts, and 22% are unaware of the need for mobile compliance at all.
“Part of the problem is that the technology wasn’t very mature when this was first introduced,” said Rik Turner, senior analyst at Ovum. “It’s now a lot better, but that initial difficulty left wriggle room. There were a lot of pilot programmes and discussions early on where the market pleaded for more time, and that inertia carried on through so much so that it wasn’t strongly communicated by the regulator to the market that this is the law, and you have to comply. There are still people out there who genuinely don’t know this applies to them.”
“If a trader doesn’t have recording in place and he receives a call, he’s supposed to hang up – but in reality that’s unlikely, especially if the caller is an important high net worth customer,” said Steve Haworth, chief executive at TeleWare. “People expect you to be available, and business doesn’t stop outside the hours nine to five. Policing that is difficult. There needs to be more clarity that if you have a business phone, you need recording. The FCA believes it is clear on this point – but significant parts of the industry still haven’t realised it.”
The technical tools to allow voice recording basically divide into two models, the app-based approach and the network approach. Early solutions mostly focused on the app-based approach, which has the advantage that it works regardless of which mobile network operator provides connectivity to the firm’s trading floor. This means it can be controlled by the company’s IT department, kept in house and deployed internationally. The downside is that it is limited to the mobile operating system on which it sits. There are no compliant apps for iOS because Apple refuses to release an API, making it impossible to develop one. While a financial institution could force traders to use one type of device, Ovum points out that this flies in the face of the bring your own device trend that is becoming more common in many industries, including investment banking. Extra charges may also be incurred if the app places a second mobile call to the on-premise recording server.
The network approach triggers a recording based on which SIM card is making or receiving a call. The advantage of this approach is that it requires no intervention by the end user or the IT department, since the recording functionality resides in the SIM card, which comes directly from the operator. There is also no significant increase in delay in the call going through, which benefits the end user. The downside is that it is operator-dependent, so if the trader is working abroad, the service will rely on the operator’s ability to continue to record over the network of a roaming partner, which must support an intelligent networking protocol called CAMEL for the recording to work in a compliant manner.
This can be a problem in places such as China. A bank that operates globally will need to sign deals with multiple suppliers if it wants to use network recording. The other issue is that, since no mobile network operator has so far launched in-network recording, banks taking this route will need to rely on a mobile virtual network operator that piggybacks on an MNO’s network but has responsibility for issuing the SIM card, which can be an inconvenience for the customer because it means managing two separate mobile contracts, one with an MNO for the bulk of their employees and the other with an MVNO for those employees whose calls must be recorded.
TeleWare’s solution is to change the SIM in the trader’s phone, which then captures the call automatically. The firm has its own core network, and also buys capacity from mobile operator networks where necessary. That technology can then be combined with other services such as Bloomberg Vault, a cloud-based enterprise information management platform introduced in 2010.
Other firms have developed similar offerings. In February 2013 Orange Business Services Trading Solutions (now Etrali Trading Solutions) launched a collaboration with Bloomberg designed to record voice data in real time. Based on Bloomberg Vault, that service involved feeding the Orange data from phone calls into Bloomberg Vault, so that compliance personnel can carry out a single search across different formats including email, instant messages, Bloomberg messaging, mobile, social media and voice records.
“The thing about this is that it’s not very difficult to be compliant – other regulations are vastly harder,” said Haworth. “It’s one of the easiest problems to solve. It’s a SIM card and that’s pretty much it. The international regulation is coming – Dodd-Frank covers the UK, for example – so it’s not going away. I feel that if financial institutions moved away from thinking about this as a box-ticking exercise, there’s a big opportunity to use the data to drive innovation.”
“Management by policy is not workable in the longer term,” added Turner. “Do you want to upset the people on the trading floor who are your main source of income? Particularly if the institution down the road allows mobiles? Banning mobiles on the trading floor is not a good way to go. The trader may just carry on doing it. He’s not really going to wait until he gets back to the office from lunch to answer an important phone call. He has been told he is not allowed to use a mobile device, but the potential for an awkward conversation with the regulator is still there.”