CFTC record keeping requirements on audio transcription

The CFTC’s different record retention requirements for electronic and voice communications is creating a conundrum for financial firms that are subject to these rules. While record keeping for electronic communications are widely accepted, there are questions around whether voice transcriptions should be considered written records or not.

What does the CFTC say about recordkeeping obligations?

There are a couple variations in how firms are advised to retain communications data. CFTC Rule 1.31 states that electronic communications ie: any form of written communication, must be retained for a period of five years while voice communications must be retained for only one year. The grey area in the middle concerns voice transcription data generated by communications surveillance software.

It is generally accepted in the financial community that if a firm transcribes its voice communications it creates an electronic record that becomes subject to the 5-7 year retention period. Some believe the negatives of this outweigh the positives in that the additional records present a increased legal risk because the transcription is then discoverable during litigation.

While some firms treat transcription data as part of there vast amounts of records they must store on a daily basis, others have shied away from monitoring their voice communications to avoid the additional record keeping scope or elevated risk that data imposes. This isn’t exactly the intention of this rule.

Many firms who choose this route are missing out on the benefits of transcribing their voice communications and leveraging the knowledge of what’s being discussed on the trading floor to reduce business and regulatory risks as well as improve their business practices.

Transcription creates less risk than manual sampling methods

 Instead of using the automated RegTech solutions to analyze their voice communications, many firms are still using a manual sampling approach.

 This approach causes many man-made problems.

Audio sampling involves teams of people listening to a recording of a voice call, usually through random selection. Not only is this approach extremely resource intensive, but it is also error-prone and not very effective in identifying suspicious behavior.

Humans are also prone to distraction and listening to hours of calls can be exhausting. With different resources listening to different communications they may miss common patterns of behavior. Each employee will have their own inherent biases causing them to interpret the communications in a different way. In addition, these resources must be well-trained in the business and securities laws to identify inappropriate behavior. This results in high turnover in these positions as employees move on to more attractive roles.

 With automated voice surveillance, firms are able to monitor 100% of their voice communications and run that data through compliance policies that will alert to any breaches in conduct or evidence pointing to market abuse. This approach significantly reduces the risks to your business as well as effectively complies with global regulatory requirements.

The business benefits of audio transcription

 In addition to reducing risk by improving the surveillance capabilities there are many other business benefits to transcribing voice communications.

• • It improves comms searchability / e-discovery
    Supervisors can easily search communications to monitor employee behavior and identify areas for improvement. For example, if a customer files a complaint, the supervisor can easily search the communications to identify the conversation and address it with the employee. They could also search all communications to see if other customers may have experienced the same issue.

• • Your communications are ready for Trade Reconstruction
    The ability to automatically reconstruct trades is greatly enhanced when the content of communications, and not just metadata, can be analysed to determine if the communication is related to a trade. This is particularly helpful for global Swap dealers who must comply with the Dodd-Frank Title VII 72-hour deadline.

• • Reduced conduct risk for your firm
    Regulators have already demonstrated their ability to analyse voice communications in cases involving the manipulation of ISDAfix and LIBOR. Companies that think they can reduce their legal risk by not transcribing voice communications are in turn increasing their conduct risk by not understanding what is in their voice communications.

Regulators favor firms that self-report issues before they are identified and reported by someone else.

To transcribe or not to transcribe, that is the question

Advances in the technology to transcribe voice to text have dramatically improved the accuracy of the transcription process. Modern voice technology uses Machine learning to categorise and separate calls related to trading activity: from personal calls or calls that are not business-related. Furthermore, Natural Language Processing to aids better transcription and when trained to transcribe financial terminology, Capital Markets firms gain much higher levels of accuracy. This approach will dramatically increase the coverage and efficiency of the surveillance while reducing the cost.

As most evidence for market abuse is found on voice channels, ensuring that information is accurately transcribed and monitored gives compliance and senior managers that added level of oversight needed to protect their firm from market abuse and misconduct.  

If you’re interested in hearing more about how VoxSmart can help your firm significantly reduce the risk of un-monitored channels with our voice surveillance solutions, get in touch for a demo.