July 2014 Issue
The amount of regulation governing companies in the finance sector continues to increase. Simultaneously, the data that these businesses produce is growing: every year, a typical Fortune 500 company can produce several petabytes of electronic information. Each employee is likely to send and receive around 100 emails per day, according to The Radicati Group, Inc., and each piece of data is likely to cross the desktops of dozens if not hundreds of individuals. Whether stored on hard drives, databases, removable media like USB keys and CDs, or on backup tapes, that data is archived and replicated, and grows exponentially. According to a 2012 IDC iView survey, 2.8 zettabytes of information were created in 2012. This is projected to grow to 40 zettabytes in 2020, representing 50-fold growth from the beginning of 2010.
This information comes in several forms and presents a huge challenge for businesses when it comes to searching and reviewing data during the course of an investigation. Evidence contained in voice recordings (‘audio evidence’), in particular, can be pivotal to a legal case and a failure to deal with this evidence effectively and efficiently can leave businesses open to judicial criticism, damaging publicity and searing fines from regulators.
Our research, drawn from a November 2013 survey targeting senior-level decision-makers within leading blue-chip businesses across four European territories – the UK, Germany, Switzerland and the Netherlands – showed that the relatively new challenges presented by the admissibility of voice recordings are yet to be comprehensively addressed by the majority of leading corporates, including those in the finance sector.
The findings indicate that managing audio data is a ‘key challenge’ for more than one-third (38 percent) of major corporations across Europe. More than two-thirds (69 percent) of the survey respondents also recognise the need to improve processes to deal with audio admissibility.
There have been several examples of high profile cases in which audio evidence has played a role. JPMorgan, for example, was investigated by the Financial Conduct Authority (FCA) last year following rumours the bank was sitting on large losses. Investigators uncovered internal documents and calls which showed that the Chief Investment Office (CIO) was “in crisis mode” as managers realised that multi-billion dollar hedges meant to protect the bank had lost almost all their worth. The ‘London Whale’ loss resulted in fines of $920bn, the second-largest fine ever imposed by the City regulator.
In September 2012, the Consumer Financial Protection Bureau (CFPB) fined Discover Bank $14m and ordered $200m in refunds for 3.5 million customers over deceptive telemarketing and sales practices; this was the result of evidence which came to light from the banks telemarketing recordings, according to the CFPB.
Many regulatory authorities recognise the compelling nature of audio evidence. In the UK, the Financial Services Authority (FSA) introduced rules in 2008 requiring that all firms regulated by the FSA record all telephone conversations and electronic communications relating to client orders and the conclusion of transactions in the equity, bond and derivatives markets. In November 2011 this requirement was extended to cover the recording of mobile phone conversations that relate to client orders and transactions by regulated firms. In France, the AMF requires providers of investment services to record the telephone conversations of traders and other relevant persons so that transactions can be monitored. These recordings must be held for at least six months, but no longer than five years.
Similar rules have either been introduced or are under consideration by regulators across the globe. Although IT departments of regulated businesses have taken technical steps to comply with these obligations, their review systems have been designed around the need to provide a small-scale sampling of a particular individual’s calls over a short period of time, rather than a comprehensive and defensible collection over an extended period, as typically required for litigation or a major regulatory investigation.
The technologies and techniques which are available to deal with audio evidence are evolving rapidly and it is important for lawyers to keep abreast of these developments. Dealing with audio evidence efficiently, such that the cost remains proportionate to the overall cost of the legal exercise, is a challenge. As ever, while the technologies are crucial to providing a solution, a considered and well thought through plan and consideration of the available options will stand those who are required to search, review and disclose audio evidence in good stead.
Conclusion
The variety of devices on which conversations can be recorded makes the retrieval of audio evidence increasingly complex. The traditional method of review – where a person listens to many hours of conversation – isn’t scalable. Companies in the financial sector need to ensure that they are aware of newer technologies and techniques which are available to deal with audio evidence. Dealing with audio evidence efficiently, such that the cost remains proportionate to the overall cost of the legal exercise, is a challenge. However, it will be increasingly difficult for businesses to complain that audio evidence is too complex to deal with. As ever, while the technologies are crucial to providing a solution, a well thought through plan and consideration of the available options will stand those who are required to search, review and disclose audio evidence in good stead.
Deborah Blaxell is a legal consultant and Martin Bonney is a director at Epiq Systems.
© Financier Worldwide
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Deborah Blaxell and Martin Bonney
Epiq Systems