Mobile call recording poses dilemma for financial institutions

By Elliott Holley

The rise of bring your own device is posing a major challenge for banks and financial markets firms, as the growing variety of handsets on the trading floor complicates efforts to enforce the UK’s mobile call recording obligations.

Ever since November 2011, investment firms including banks, stockbrokers, investment managers and hedge funds in the UK have been required to record traders’ calls and sore them for at least six months, and to take reasonable steps to prevent relevant conversations taking place on private mobiles and other private devices.

The technical tools to do so basically divide into two models, the app-based approach and the network approach. According to research by Ovum and computer telephony specialist Teleware, early solutions mostly focused on the app-based approach, which has the advantage that it works regardless of which mobile network operator provides connectivity to the firm’s trading floor. This means it can be controlled by the company’s IT department, kept in house and deployed internationally. The downside is that it is limited to the mobile operating system on which it sits. If traders are using a mixture of BlackBerry, iOS and Android devices, there are no compliant apps for iOS because Apple refuses to release an API, making it impossible to develop one. Furthermore, keeping a group of BlackBerry, Android and Windows Phone apps up to date may be difficult, warns the firm’s research paper, Mobile Call Recording in the Financial Markets: Assessing the Impact and Opportunities Created by Changing International Regulation.

The choice of device is an increasingly important factor for financial institutions, particularly as BlackBerry is declining in market share as corporate buyers “prepare for the company’s possible demise”. Ovum research into the advance of the bring your own device trend found that of those employees still using mobile phones provided by their company, the percentage using BlackBerry dropped dramatically between 2012 and 2013, from above 35% to just over 20%. Over the same period, Android increased its share from around 33% to around 47%, while iOS increased from around 17% to approximately 22%. The report notes that the BYOD trend “clearly favours non-BlackBerry devices, with which consumers are far more familiar.”

Even if users are simply using a mixture of different BlackBerry 5, 7 and 10 devices, not all apps will work across the different versions. While a financial institution could force traders to use one type of device, Ovum points out that this flies in the face of the BYOD trend, which is becoming more common in many industries, including investment banking. Extra charges may also be incurred if the app places a second mobile call to the on-premise recording server, or conversely if the corporate telephony system re-routes outbound calls from a mobile to reach the on-premise recording server, the call will cease to use the mobile network at a very early stage, which may impact on the number of minutes a mobile number uses per month and thus reduce the company’s overall monthly usage, causing it to fall short of an eligibility threshold for a corporate discount.

The alternative is the network approach, which automatically triggers a recording based on which SIM card is making or receiving a call. The advantage of this approach is that it requires no intervention by the end user or the IT department, since the recording functionality resides in the SIM card, which comes directly from the operator. There is also no significant increase in delay in the call going through, which benefits the end user. The downside is that it is operator-dependent, so if the trader is working abroad, the service will rely on the operator’s ability to continue to record over the network of a roaming partner, which must support an intelligent networking protocol called CAMEL for the recording to work in a compliant manner. This can be a problem in places such as China. A bank that operates globally will need to sign deals with multiple suppliers if it wants to use network recording. The other issue is that since no mobile network operator has so far launched in-network recording, banks taking this route will need to rely on a mobile virtual network operator that piggybacks on an MNO’s network but has responsibility for issuing the SIM card, which can be an inconvenience for the customer because it means managing tow separate mobile contracts, one with an MNO for the bulk of their employees and the other with an MVNO for those employees whose calls must be recorded.

TeleWare’s solution is to change the SIM in the trader’s phone, which then captures the call automatically. The firm has its own core network, and also buys capacity from mobile operator networks where necessary. That technology can then be combined with other services such as Bloomberg Vault, a cloud-based enterprise information management platform introduced in 2010.

Other firms have developed similar offerings. In February 2013 Orange Business Services Trading Solutions (now Etrali Trading Solutions) launched a collaboration with Bloomberg designed to record voice data in real time. Based on Bloomberg Vault, that service involved feeding the Orange data from phone calls into Bloomberg Vault, so that compliance personnel can carry out a single search across different formats including email, instant messages, Bloomberg messaging, mobile, social media and voice records.

Notably, 24.8% of all respondents in the survey reported that company policy was unrestricted support for BYOD, while 8.8% allowed limited supported BYOD, 26.1% allowed unsupported, unrestricted BYOD, 7.1% opted for choose your own device (in which the company pays but the user has choice), while 8.9% had no choice in corporate provisioning and 24.3% were specifically not allowed to use their device at work.

“The thing about this is that it’s not very difficult to be compliant – other regulations are vastly harder,” said Steve Haworth, chief executive at TeleWare. “It’s one of the easiest problems to solve. It’s a SIM card and that’s pretty much it. The international regulation is coming – Dodd-Frank covers the UK, for example – so it’s not going away. I feel that if financial institutions moved away from thinking about this as a box-ticking exercise, there’s a big opportunity to use the data to drive innovation.”

Part of Haworth’s frustration stems from recent research which suggests that nearly half of traders in the UK still are not recording their calls, even though the rules have required them to do so for the last two years. When the UK rules were introduced, the FSA estimated that there were 22,000 mobiles that would need to be recorded, based on figures drawn from a 2008 survey which relied on banks submitting their own estimates. But there was never a final consensus on the number, and a separate TeleWare study suggested the true figure could be as high as 45,000. Ovum research in late 2012 and early 2013 found that no more than 18,000 phones were actually being recorded, and perhaps as few as 9,000. TeleWare agrees that no more than half the target number of phones are currently being recorded.

“If a trader doesn’t have recording in place and he receives a call, he’s supposed to hang up – but in reality that’s unlikely, especially if the caller is an important high net worth customer,” said Haworth. “People expect you to be available, and business doesn’t stop outside the hours nine to five. Policing that is difficult. There needs to be more clarity that if you have a business phone, you need recording. The FCA believes it is clear on this point – but the industry hasn’t implemented it.”

Of those that didn’t record their calls, 24% mistakenly thought they were not covered by the rules, 20% admitted not all mobile phones are compliance, 16% think they are too small to matter to the FCA, 18% mistakenly think they don’t need to record the calls because they complete all sales with printed contracts, and 22% are unaware of the need for mobile compliance at all.

“Part of the problem is that the technology wasn’t very mature when this was first introduced,” said Rik Turner, senior analyst at Ovum. “It’s now a lot better, but that initial difficulty left wriggle room. There were a lot of pilot programmes and discussions early on where the market pleaded for more time, and that inertia carried on through so much so that it wasn’t strongly communicated by the regulator to the market that this is the law, and you have to comply. There are still people out there who genuinely don’t know this applies to them.”

“Management by policy is not workable in the longer term,” added Turner. “Do you want to upset the people on the trading floor who are your main source of income? Particularly if the institution down the road allows mobiles? Banning mobiles on the trading floor is not a good way to go. The trader may just carry on doing it. He’s not really going to wait until he gets back to the office from lunch to answer an important phone call. He has been told he is not allowed to use a mobile device, but the potential for an awkward conversation with the regulator is still there.”