Legal cases, however serious, often feature moments of hilarity. The recent case brought by Tullett Prebon against BGC had City types guffawing into their drinks when one of the BGC executives accusing of unlawfully poaching Tullett staff claimed to have lost no fewer than seven BlackBerries.

The ubiquity of the BlackBerry and other smartphones is one factor in the decision by the UK's Financial Services Authority reconsider its rules on recording of calls and the exemption it made for mobiles. It is currently consulting with the industry on what the implications of a reversal will be.

If it does remove the exemption, then it is likely that the new rules would come into effect late in 2011 and cost the industry millions, and, in March 2008, the FSA published rules (PS08/1) on recording voice conversations and electronic communications. These rules require firms to record ‘relevant communications' and keep them for six months. ‘Relevant communications' refers 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.

The rules, which came into force in March 2009, were aimed at tackling market abuse - although the taping rules also assists the FSA in its conduct of businesses supervision - by ensuring access to "high quality, contemporaneous evidence to help monitor, investigate and prosecute such cases". Mobile phones and mobile communications (except emails) were excluded from these rules, primarily because of concerns that "the technology to capture these communications was insufficiently developed".

However, it said that it would review this exclusion towards the end of 2009, and as part of this review it has 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.

The FSA anticipates that the proposal will cover around 16,000 mobiles - though some vendors say that it may be as high as 40,000 - on which basis, it estimates that the total one-off cost will be approximately £11 million, with total on-going costs around £18 million a year (see panel).

According to Europe Economics, a consultancy firm engaged by the FSA to report on the issue: "Given modern technology, there is an obvious regulatory gap in mandating fixed line recording whilst leaving mobile phones exempt, unless doing business on mobile phones is banned (which seems impractical). The exemption creates clear incentives to pursue illicit conversations through mobile phones, and the cost of installing and maintaining the fixed-line-only recording machine is incurred with limited useful effect."

The response from vendors has been predictable, with the likes of Orange Business Services launching mobile recording systems for traders. Orange Business Services developed its solution in partnership with Voxsmart, a mobile recording specialist, and says that it will initially be available on smartphones and offers users automatic recording of calls, instant messaging, SMSs and voicemail, globally. It is also turret, recording system and operator agnostic so it should be able to be used regardless of the network, and is transparent to the user so that they are aware that the call is being recorded. The user also has the ability to switch off the recording facility if personal calls come in, but the call can still be tracked.

Other vendors have begun pitching their tents outside financial services firms' offices, on the general assumption that the FSA hasn't yet released a consultation paper and not followed it through with a rule.

How difficult is it to deploy a recording system for mobiles? Speaking at a recent seminar organised by Research in Motion, the maker of the BlackBerry, Robert Dempster, the company's director of enterprise sales in the EMEA region, said: "Our view is that due to the advances in technology customers can easily integrate voice recording solutions on the mobile platform. It's not particularly complex, but there has been a massive growth of smartphones - Gartner says that last year it was 27% - and the fact is that organisations are moving away from straight email and voice."

Stephen Hanks, policy manager in the Investments Policy Department of the FSA, said that it had come to much the same conclusion: he says that when the FSA consulted previously, in 2007, there was a widely-held view that recording mobile conversations was technically difficult and specific to particular handsets but vendors and operators are no longer saying that. "Now there are a much wider range of solutions that are flexible and don't require you to replace your handsets or get it from a particular provider."

Some firms already tape mobiles, though the FSA assumed that no-one does, for the purposes of calculating the burden caused by removing the exemption. "In the responses we had there were perhaps two or three that do, but I think there is a wider number that have looked at the technology and trialled it in some form," said Hanks. "Firms have been looking at the technology, and I'd assume that the fact that we've published a consultation paper would encourage more firms to look at the technology, to trial it and contact suppliers to talk through the issue."

RIM's Dempster says that they are "definitely" seeing an upturn in interest in recording. "Many of the financial organisations that we are working with have compliance right in the front of their mind at the moment and BlackBerry is working with them to address not only voice recording but other areas of compliance. It's a big topic," he said.

While the technical issues can be solved in a number of ways, the deployment of a solution raises operational and business practice challenges that also need to be addressed, according to Roger Tym, a partner in the financial services practice at legal firm Lovells. "If the exemption is removed," he says, "the additional rule that will be brought in requiring firms to take reasonable steps to prevent their employees or contractors using private mobile devices introduces another train of thought as to what those reasonable steps might be ..."

Hanks said that existing internal rules will also need to be revisited. "A lot of investment firms have banned the use of mobile phones on the trading floor, and even out to other areas. Whether they will remove that ban if we introduce the rule, I don't know - we'll have to wait and see. I suspect that they won't at first," he said.

While the FSA is still in a consultation phase, it is hard to make firm decisions on some aspects of how it will be implemented. For instance, there is a certain amount of confusion about what the FSA expects in terms of storing and managing the recordings.

"My understanding of the legislation is that the calls have to be recorded back into the central systems, and that is what we are working to with our independent software vendors," said Dempster.

Jocelyn Macafferty, also from the FSA, said that it is not going to be prescriptive about the technology that is required, but, rather, to establish a framework. "We haven't actually specified whether or not it has to be done centrally or hosted, so long as a firm can retrieve a record on our request, which is the demand that we make."

Hanks added: "There is a question of consistency of operation as well: if there is one system in place already, you might want to take account of that when adding on a system to comply with the new requirements."

So if there is going to be a requirement to record mobiles, is there an upside? Macaferty said that "in the consultation paper we have specifically asked firms to feed back to us circumstances of where mobile phones are critical to their business, specifically for relevant conversations, so we are interested to hear from firms on this."

Tym said that in legal disputes there would be a clear advantage: "Obviously there is a question of evidence, so what recording calls does is give a contemporaneous record of that conversation, so that must put firms in a better position, for example if they are dealing with their own claims or claims against them, in terms of what actually happened leading up to the conclusion of an investment agreement. Also, if they want to close off an avenue for employees that might wish to abuse the equipment they are given, by using it for the wrong purpose, then this gives them recourse - if the employee knows that their conversation is being recorded they are less likely, hopefully, to go down that route."

Hanks said that this is also the view of the FSA: "We have always thought that it is helpful to the firms in terms of raising standards of behaviour that employees are aware that their conversations are being recorded. It was clear when we were doing the fixed lines, that while there wasn't an obligation in our rules prior to 2009, firms were, on a pretty wide scale, recording conversations. Partly that was influenced by rules imposed by exchanges, but it was also the firms themselves wanting to have some grip on what their employees were saying in conversations and being able to review those conversations."

This raises the issue of other forms of messaging other than voice and email. Many traders, particularly in foreign exchange, it seems, use instant messaging, and SMS text messages from mobiles have featured in many an insider trading case.

Macafferty said that the FSA "hasn't exhaustively defined" what it means by electronic communication. "Obviously it's a dynamic thing," she said. "Instant messaging, multimedia, SMS - that list is not exhaustive."

The obvious approach is for firms to take an over-arching approach to all forms of communications. "There are a number of issues," says Tym. "The first is that firms have to have suitable systems and controls anyway, so they must have a handle at all times on how business is transacted. At the moment they will have a very good idea of which deal was made by whom and when: it can only help that to be able to record those conversations. I'm always a believer in making a virtue out of necessity, and while we are in a consultation period at the moment, we can see which way the wind is blowing, so for firms that can go early it must help operational efficiency."

Tym said that the ability to carry out transactions in a variety of channels in different locations "has to be of benefit" to firms' operational efficiency.

This view is echoed by Dave Brown, chief operating officer at Obsidian Wireless, a software developer in this area. He says that many firms are keen to put structures in place that will make them more flexible. "Their traders want to use mobiles, but they can't, so they have to ban them; the new rule will let them embrace mobiles and still be compliant," he said.

It also removes a grey area - the rules on what is a "relevant conversation" currently cover the conclusion of an agreement, but a simple discussion of the state of the market, say, is not necessarily part of that conclusion, even if it may form a material part of the decision to make the transaction. This means that there are times when parties have to stop conversations and switch to a recorded medium to conclude the deal. Clearly this is a waste of time, operationally inefficient and raises the potential of not concluding a deal. Bringing all forms of communication into line would, in theory at least, make this seamless by removing the distinctions.

Obsidian's Brown said that the unification of all communications from a mobile device has a number of other benefits, in that all of the recordings can be time-stamped and synchronised, so that retrieval can be made simple when regulators or counter-parties want to pick up on a particular transaction.

But, he said, there is also the possibility to become more than reactive - simply retaining and retrieving calls when an issue arises. By applying business rules to the call traffic, firms are able to instantly detect when an employee communicates with particular counterparties, and thus go some way towards pre-empting insider trading.

While this could be done simply by blocking certain numbers, Brown says that the integration allows for a smarter approach to surveillance: by scanning SMS, e-mail, instant messages and both mobile and fixed-line voice traffic, alerts can be set for particular combinations of behaviour. For instance, a trader might regularly call a particular counterparty after they get an SMS from another party, and that might warrant investigation.

For firms that want to avoid finding out about their rogue traders the hard way, that is a benefit that will considerably outweigh the disadvantages and costs of compliance in this case.

Counting the cost

Europe Economics based its calculations on an assumption that 30% of the 50,400 employees falling into the FSA's jurisdiction with a recorded fixed line use a mobile device for business purposes, and came up with the following:

• The range of one-off costs for recording and storing for six months voice and SMS communications from mobiles is £2.3-3.4 million. (This is approximately 2.5 times greater than its previous estimates because the assumed number of devices is 2.5 times greater than was originally thought.)
• The range of ongoing costs for recording and storing for six months voice and SMS communications from mobiles is £2.3-9.5 million a year.
• The range of one-off costs for recording and storing for six months all mobile communications other than email (which is not exempt from current taping rules) is £5.9-7.0 million.
• The range of ongoing costs for recording and storing for six months all mobile communications other than email (which is not exempt from current taping rules) is £8.7-£20.9 million a year.