Getting Back to the Basics with Recording in Financial Institutions

By Robert Simpson, Vice President, Global Financial Compliance, Verint.

28th October 2013

In 2012, it’s no secret that many financial institutions supported a vigorous and concerted campaign against proposed regulatory changes. These organizations made it clear that the costs of implementing systems to record landline conversations and associated analytics software can far outweigh the benefits. Some financial institutions drew parallels between the implementation of the FSA mobile recording directive, which has “not achieved the levels of stability, performance and scalability that would be considered for commercial grade products and the implementation of the Dodd Frank Act” In particular, they pointed to the limitations of speech analytics software with respect to performance in a trading floor environment.

This year, indicators point to the campaign continuing to gain traction. The industry is expected to see a marked change in the position of the Commodity Futures Trading Commission (CFTC) in 2013, and some view that the changes will be less dogmatic and more pragmatic.

With the process already underway, two recent decisions are worth highlighting:

A recent ruling reversed a decision to keep all transaction records in electronic files on a real-time basis, instead stipulating that “firms are only required to identify and retrieve relevant records upon Commission request.” and that records could be retrieved electronically or manually. This decision recognised the prohibitively high costs of retrieving data on a real time basis and the immaturity of solutions designed to electronically tag transaction records.
The CFTC has indicated that the schedule for implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act could be relaxed “if compliance is technologically or economically impracticable for an affected entity prior the compliance deadline.”

The CFTCs recent pragmatism could herald the beginning of a new relationship between it and the Securities Industry and Financial Markets Association (SIFMA), the industry body which represents the banks. All said, this doesn’t mean that the requirements to record or reconstruct a trade have been abandoned. What it does mean, however, is that the challenge of meeting the lofty objectives of the Dodd-Frank Wall Street Act are more complex than originally anticipated, and as such, will require a deeper understanding of financial institutions’ processes, technology infrastructure and capabilities.

For a small number of vendors, this could create an opportunity to foster a relationship with customers as a trusted technology advisor. To earn trusted status, vendors will need to embrace a set of basic principles based on: open standards; leveraging pre-existing end user infrastructure; focusing on core capabilities and; providing access to a network of best-of-breed partners.

Source: IPC Systems, Inc