Hold the phone – What are the voice recordkeeping requirements for firms?

Text and electronic messaging may have become default methods of communication in this day and age, though the value of a phone conversation is not to be underestimated. Alongside getting to talk to someone in real-time and convey tone and feeling more clearly, phone calls offer people an opportunity to communicate freely and quickly – which is often vital on the trading floor

Consequently, the use of voice as a method of communication is not disappearing anytime soon, whether that be through a personal phone call with a friend, or a business call with a client. In industries that are highly regulated, maintaining an archive of these types of conversations is fundamental.

Leave a message, record a message

Modern communication platforms like WhatsApp, Teams, and Slack have become widely used across the industry, and along with them comes the expectation that any and all communications will be retained. While the focus has been on instant messaging (IM) and written communications, these channels, and others, do allow users the ability to utilize voice chat to reach their contacts, which means the risk of significant conversations happening over them is a necessary consideration.

For example, on Teams, you can initiate a one-to-one or group phone call with contacts. Similarly, WhatsApp allows users to utilize voice chat in real-time while simultaneously messaging contacts. Some social media platforms, such as LinkedIn, even allow users to record voice messages for connections. And that’s not to mention soft phones, or standard telephone calls.

Yet, as mentioned, voice communications’ variation from written communications means that capture hasn’t always been as straightforward – posing a challenge to compliance teams. Alongside the difficultly of ensuring that voice capture data is high-quality, factors like the use of different languages, slang terms, and code words can impact the ability to transcribe voice conversation and retain accurate records of them.

Voice capture also bares an avenue for cyber threats, particularly when it comes to artificial intelligence (AI). More sophisticated technology means that bad actors can exploit AI to target firms (and even the agencies that regulate them) by creating deep fakes to mimic voice and mislead clients, for example.

Despite these challenges, capture solutions develop alongside evolving communications, meaning that though regulators are pursuing firms for potential communications violations involving voice, external providers are prepared to leverage evolving technologies to face and navigate the risks that voice channels present.

What’s the buzz around voice regulation?

In the U.S., regulatory amendments and statements concerning voice capture have been relatively amorphous as compared to electronic messaging platforms, which have been receiving heavy attention with the succession of activity around WhatsApp and personal text. That being said, it would befit firms to bear in mind that regulators continue to pay close attention to recordkeeping compliance, meaning any communications, including voice, could be next for review.

Of the statements that regulators have released so far, certain pieces could be interpreted as including voice. The Financial Industry Authority’s (FINRA) Books and Records guidelines, which are one of the overarching recordkeeping requirements, state that the records firms must retain include “correspondence and other documentation or information.”

Additionally, FINRA states that “the recordkeeping rules require firms to retain, among other records, communications relating to their ‘business as such.’” While these requirements don’t explicitly specify voice or audio, the breadth of communications that could be included within the parameters of this description mean that regulators pursuit of various methods of communications is not out of the question.

In its Rules and Guidance on social media, FINRA clarifies that the “business as such” requirement is not based on the type of device that is used to communicate, but the content of communications that relate to any aspect of a firm’s business. FINRA explained that though social media is a new medium of communicating, any communication with the public related to business must be recorded – which could be interpreted in the context of voice as well.

Distinct channels like WhatsApp and SMS are not included in FINRA’s definitions either but became regularly referenced within recordkeeping failure enforcements. As platforms continue to rapidly gain popularity within business environments, the expectation for firms to continue reevaluating their recordkeeping supervision and retention must shift to match modernization.

The Commodity Futures Trading Commission (CFTC) released certain regulations that mention expectations for maintaining audio records, such as in the Dodd-Frank Act, which is a reform that promotes transparency and accountability in the financial system to mitigate risk following the 2008 financial crisis. Targeted at the swaps market due to the number of transactions that happen over the phone, the CFTC outlined requirements for audio recordings:

“Although the CFTC requires registrants to make and keep records of all oral communications pertaining to pre-execution trade information, including telephone calls, the Commission’s record retention rule applies only to recordings of telephone calls, i.e., those voluntarily made by the registrant.”

In addition, CFTC Rule 1.31 and 1.35 require firms to record oral communications that lead to a commodity interest transaction, “including oral communications conveying quotes, solicitations, bids, offers, instructions, trading and prices communicated by telephone, voicemail, mobile device or other digital or electronic media.” This rule applies to futures commission merchants and introducing brokers, as well as certain members of a designated contract market, retail forex dealers, and swap execution facilities.

Though sporadic, the CFTC has issued fines for failure to preserve audio records as pertaining to the recordkeeping regulations firms must abide by. In one enforcement, a firm violated CFTC’s enforcements for swap dealers, which require the recording and maintenance of audio files. In the other, a registered introducing broker failed to make and keep audio files for one year.

Similarly, EU compliance teams have a commitment to the capture of voice. The EU’s MiFID II Rule details the breadth of communications that firms are expected to capture, including electronic, telephone, and mobile communications. The rule requires investment firms to “tape calls that have the intention of leading to a transaction.” Upon recording these conversations, firms are required to store them for a period of five years.

Don’t miss the call

Despite voice capture being a more casual concentration, it is certain that regulators are standing strong on their commitment to monitor and verify that all forms of communications are being retained. In this sense, ensuring that your firm has a clear idea of what channels may pose voice risks, educating personnel on these voice risks, and planning to employ a solution that captures all potential communications relating to business is a step in the right direction.

Voice channels may be difficult to accurately capture, especially considering the variable factors that influence the clarity with which records can be retained. However, technology is fast advancing and having a record of phone conversations provides the advantage of more enhanced surveillance and sentiment analysis, as phone calls offer the ability to have more in-depth, free-flowing conversations.

These points considered, by employing a solution that can analyze, transcribe, and retain voice communications, firms can be sure that they’re on top of what’s happening within the operations and are not missing the call when it comes to capturing all business-related conversations.