Keeping a Record: Communications Recording for Trading Compliance

The most recent development in the evolution of this regulation has been the requirement to record mobile phone conversations. Meeting the need is not easy. As in most businesses, the amount of communication that takes place within trading generates a mind-boggling amount of data. Recording all of this – voice conversations (both mobile and fixed), text messages, emails, instant messages, and so on – storing it and keeping it for a specified length of time is a challenge in itself.

Furthermore, the recording is just the beginning. The bigger challenge comes with addressing how the data is then analysed, so that the specific bits of information relevant to a particular trade in question can be pulled out. Then, the information must be organised into a simple, coherent and complete history and presented within a challenging timeframe to the relevant authority.

Companies addressing the infrastructure and process demands this places on them are looking to technology solutions and robust internal and external processes to keep them compliant. To a certain extent, it is an industry-in-waiting as a limited number of cases have tested the compliance of industry players. Without a benchmark to look to, companies cannot be sure the approach they have taken will be adequate, should they ever be the one put to the test.

Transparency

There are differences in regulatory demands across territories, but all broadly aim for greater transparency in the way trades originate and are executed. In the UK, the Financial Conduct Authority has extended the requirements of the European Markets in Financial Instruments Directive (MiFiD) for fixed-line voice recording to include all electronic communications to and from mobile devices concerned with receiving and executing client orders or transactions. This impacts traders, front and back office advisors, settlement and private banking staff, and recordings of their communications must be retained for six months.

In the US, the Dodd Frank Act requires that, upon demand, voice and data – emails, instant messages, text messages and trade processing – relative to a specific identified trade be made available and presented. Information must be in a suitable format so that it can be reviewed to confirm that traders took appropriate action to achieve the best price at the appropriate time.

In the future, the impact of the regulators worldwide is expected to extend even further, creating a far reaching and complex regulatory reform framework with requirements impacting almost all traded entities in financial services.

Cost Effective

The intent is to avoid over-compliance, which would be prohibitively expensive in infrastructure and resource, and under-compliance, which could be even more costly in fines and reputation should a solution or an approach fall foul of regulatory demands.  

A phased approach is likely to be the most cost-effective for companies, as is the adoption of agile technologies that can flex to adapt to new rules over time. Companies need to understand and weigh up costs for recording, storage, analysis and presentation of the information. Working with a vendor with experience and understanding of the business is a must.

To analyse unstructured data, comprising voice and text, is difficult. The temptation is to convert voice to text. However, doing so loses the tone and pitch of the interactions and voice-to-text conversion is difficult when recordings have been made in a noisy environment.

 

The foundation for tools-based analysis today is based on:

  1. Identifying relevant parties: authentication by number, SIM, log-on, biometrics
  2.  Timeline: interweaving communications by time
  3. Word spotting: basic alignment of trade flow.

Using such tools for analysis helps reduce the need for manual intervention. However, substantial human resource is still required. Technology that can completely analyse meaning, nuances, subtleties and implied meanings in communications is in a formative stage and certainly cannot be relied upon 100% of the time. Meanwhile, understanding the significance of certain activities, such as the timing of calls, is difficult to automate.

‘Bring your own device’ (BYOD) can of course cause further problems. If the deployed auditable solution for mobile voice recording is application-based, compliance could be circumvented by the use of alternative devices that don’t carry the application.

Timely

The demand for transparency is a clear intent from regulators and the industry needs to be prepared. Products exist to help IT departments grappling to meet the requirements in a timely manner.

Technology solutions providers will need to continue to develop and adapt their products to meet the challenge of communications compliance. The systems provided will need to be rules orientated to adapt to change, and regional directives.

 

The provision of voice communication capabilities is fast becoming a commodity. It is the management of voice interactions that is critical going forward – software solutions that make the data of communications, including recorded conversations, useful and that automates the collection, organisation and analysis of the data so that connections and linkages can be made. Agility and flexibility are critical here, as is delivery by experienced teams who understand the needs and drivers of the financial trading markets.

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