Traders’ Cell Phones Would Be Recorded Under FSA Plan
(Bloomberg) Traders’ mobile-telephone calls may be taped in an effort to stamp out insider trading, according to proposals from the U.K. financial regulator.
Cell phones used for business shouldn’t be exempt from rules requiring banks and brokerages to record employees’ calls, that the Financial Services Authority can listen to later, under proposals the agency said may take effect as soon as next year. Around 22,000 phones would be covered, the FSA said.
“Some would say that it is about time that mobile-phone technology should catch up with the procedures for other communication types,” said Tony Woodcock, a lawyer at London- based Stephenson Harwood. “But it does mean that determined miscreants will find other means such as private mobiles, or others’ mobiles, to effect the trading more clandestinely.”
The U.S. insider-trading case against Galleon Group LLC’s chief executive officer, Raj Rajaratnam, was brought using evidence in part from mobile-phone conversations the government got permission to wiretap.
The FSA is increasing efforts to stamp out insider trading after criticism from lawmakers that it wasn’t doing enough. It won a jail sentence against a former trader last week for the crime, which carries a maximum sentence of seven years, and this week filed charges in another case against a former banker.
Companies should make sure employees don’t use private phones or e-mail for business to circumvent the recording, the FSA said. Banks would have the option of banning employees from using mobiles for business use, the regulator said.
“Removing the exemption will provide an additional source of contemporaneous voice conversations and electronic communication evidence,” the FSA said today. “This can also help us to counter market abuse, one of our key priorities.”
The FSA started to cold-call traders to interview them under caution two years ago about possible insider trading, a strategy that fell prey to hoax calls.
The regulator had never filed a case of insider trading before 2008. It has since won all three of the cases it has brought, with another against two former mergers and acquisitions lawyers and an ex-financial officer scheduled to begin next month.
FSA Chief Executive Officer Hector Sants said yesterday that insider trading remains “unacceptably high.” Suspicious trades, which can indicate insider trading, have risen in the face of increased FSA activity. They occurred before 29.3 percent of takeovers in 2008, up from 28.7 percent in 2007, and 23.7 percent in 2005, according to FSA data.