The industry has been scrambling to comply with the Financial Services Authority's new mobile recording regulation, starting on 14 November, but merely ‘ticking the box' now could mean firms losing out on long-term efficiencies, says Neil Ainger.

The requirement to record conversations between traders, brokers, investment managers and other market participants has long been established so that regulators can check the correct procedures are being followed and investigate any misconduct. Up until now it has only applied to fixed line conversations but all that changes on 14 November when the FSA's new mobile recording regulation comes into effect. 

All participants in the UK's capital markets must record all mobile communication between traders from now on, covering voice, SMS text and Instant Messaging. Other jurisdictions are likely to follow suit - indeed Norway has already introduced the rule - so lots of vendors were expecting a bonanza of business. It hasn't necessarily turned out that way, however, says Ian Philip, the managing director of Anvil, a Mobile Virtual Network Operator, who says that many firms, especially smaller ones, "have gone for a ‘tick box' approach initially so they can prove compliance".

Firms haven't invested much money in gaining enterprise-wide efficiencies by creating a searchable database, for instance, which could be used to identify a successful individual for training purposes, to teach best practice or to identify winning strategies. To do so would require a ‘triangulation' approach anyway, with communications data being linked to performance metrics and data storage systems - no easy task.

"The compliance pay-back is there in being able to do business wherever and whenever the opportunity arises [as brokers aren't stuck to a recording device at their desk anymore]," explains Philip, but there is more that could be done that hasn't happened yet, due to the pressure to meet the immediate deadline. "Many large firms, with compliance officers, are on-board with the new regulation but smaller firms have struggled."

A Vanson Bourne survey commissioned by Orange UK and its recording partner in this area, VoxSmart, supports this argument because it shows only 16% of the 100 UK-based FIs it questioned in September had unprompted knowledge of the new rules. Only 38% of the, admittedly small sample, were aware that there was "some regulation regarding mobile calls" coming into force soon.

According to Paul Metcalfe, head of voice trading solutions at Orange Business Services' Trading Solutions, "mobile recording has been on the agenda for some time now, admittedly with some false starts, yet some financial institutions have still left things to the eleventh hour. In some cases it's almost as if they are playing a game of ‘chicken' with the FSA."  

"My suspicion is that everyone will be ready in the minimal sense of the word on 14 November, with firms doing what is necessary but no more," says Rik Turner, a senior FS analyst at Ovum, who has produced his own report in conjunction with recording vendor Compliant Phones and the enterprise search specialist HP-Autonomy, entitled Mobile Communications Recording in the Financial Markets: An Update. This outlines the requirements that firms need to comply with, principally that:

■ Recording must start when a mobile device is switched on, be continuous, and not be reliant on the user. It must also be tamper-proof to avoid data being spoiled.   
■ The recording solution must work on all forms of mobile communication to and from the device(s) that a regulated firm allows traders to use for their job. Interestingly, the FSA also says all ‘personal mobiles' used for work must be covered, recognising a potential problem here and shifting responsibility on to firms.
■ The solution must work wherever the regulated employee is (i.e. a recording must be made even if a trader is in Hong Kong on a UK registered phone).
■ The recordings must be stored in an ‘easily retrievable fashion' (the FSA does not specify if this means in the cloud or on premise; leaving this up to the discretion of the firm. Various strategies have been adopted so far).

The technological considerations are substantial, especially as there weren't any off-the-shelf solutions available to start with. Delivering seamless voice as traders roam across networks and countries, consistent browser access without interference, integration with existing landline recording systems if so desired, and delivering easy retrieval on vast call volumes, is a challenge for anyone. With BlackBerry, iPhones and other types of handsets/networks there are multiple points of entry so you cannot just record calls coming in or out via the PBX switch anymore. 

Then there are the business continuity concerns - theoretically if the recording function stops then all trading must cease as no record is available. Needless to say this isn't acceptable, especially with demanding traders who are used to always-on service. Getting busy traders to buy-in to training programmes and migration policies has been another challenge.

The two major technical options at the moment are to go for a SIM-based network solution, as advocated by BT's Justin Kimber, head of strategy at its global banking & financial markets unit, or a software approach which relies on an agent on the handset either running a conference calling app, which initiates a second call to a recording server (but is susceptible to delay and cannot work with Android or Apple's iOS) or call rerouting. This latter ‘in-line' option reroutes all calls to a recording and storage infrastructure in the cloud or via the firm's existing on-premise recording server (Tier 1 banks in particular like to keep their data close to hand or in an internal data centre), but it too can be susceptible to delay. "A SIM-based network solution is best in my opinion as it isn't able to be altered by the user, there is no lengthy software configuration or complex integration needed with existing systems either," says Kimber. Others disagree, but Kimber believes the software approach is initially attractive, simple to understand and cheaper but "complexity lies just under the surface."

For technology analyst Turner, the SIM v app debate is a moot point as he thinks the lines will blur between where the recording device resides - the handset, SIM or both. What matters is the platform you put around the recording mechanism. His Ovum report predicts the major developments in the next few years will be a move towards cloud-based service providers, away from internal provision, due to the sheer volume of data to be stored, a scenario likely to be exacerbated "if the retention period is increased" with talk of an extension from 6 months to two years. An MNO, such as Vodafone, will eventually launch their own SIM-based recording service as well, believes Turner, displacing MNVO offerings.

"The tech vendor landscape in this field is evolving fast, with new solutions emerging all the time. As such, companies should avoid being tied into long-term contracts with vendors whose technology may be superseded within a year or two."