UK-based private equity firms and other financial institutions have until 14 November, or three weeks from Monday, to implement internal policies and procedures to tape employees’ relevant mobile phone conversations.
Firms are required to preserve all recordings for a minimum six month period.
A number of private equity firms have been putting off compliance with the rule, miscalculating the amount of time needed to upgrade mobile phones or systems for recordings, said Ryan Shuttleworth, the chief technology officer of Compliant Phones – an independent mobile and voice recording company which received a £2 million capital injection from UK private equity house Oxford Capital Partners last June.
Depending on the size of a firm, compliance can take anywhere between weeks to months, reckons Shuttleworth, and “some firms now have only just entered the testing phase”.
UK firms have been recording telephone calls and other electronic messages since March 2009, but mobile phone conversations were left exempt from the Financial Services Authority’s “taping rules” due to gaps in technology. However recent improvements in recording devices and the desire to circumvent market abuses prompted the UK regulator to reconsider mobile phones from exemption.
Mobile phones issued by firms for business use would be bound by the rule when employees conduct calls about transactions in quoted instruments. Due to data privacy laws, personal mobile phones would not be recorded, but firms must take “reasonable steps” to ensure employees do not use their private phones to make business calls as a way of working around the regulation.
During a consultation period trade bodies such as the British Private Equity and Venture Capital Association argued “reasonable steps” was too vague in determining what was expected of firms.
The FSA responded that its “fundamental position is that each firm must determine what is right for their individual business” in preventing employees from using personal phones to conduct unrecorded business calls.
The FSA suggested that at a minimum firms would “ensure their employees are made aware of their responsibilities… for example through adequate compliance training”, and that “proper paper or order trails to be in place so firms are alerted to any ‘relevant conversations’ that have occurred off taped lines”.
Ultimately private equity houses may have an easier time with the updated taping rules relative to other financial institutions. “Most pure private equity managers deal only occasionally in market-traded instruments, and the rules make special provision for their exceptional calls to brokers. As a result, many PE firms won't need routinely to tape all mobiles,” said Phil Bartram of Travers Smith, a law firm.