By Deborah Blaxell, Legal Consultant and Martin Bonney, Director, International Consulting Services, Epiq Systems
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 e-mails per day,[i] 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 survey,[ii] 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 evidence comes in several forms and it presents a huge challenge for businesses when it comes to searching and reviewing data during the course of an investigation. 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.
JP Morgan, 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.[iii] The ‘London Whale’ loss resulted in fines of $920 billion, the second-largest fine ever imposed by the City regulator.[iv]
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Many regulatory authorities recognise the compelling nature of audio recordings. In the U.K., 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. Similar rules have either been introduced or are under consideration by regulators across the globe. Whilst 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.
Epiq Systems commissioned research* of senior-level decision-makers within leading blue-chip businesses across four European territories – the U.K., Germany, Switzerland, and the Netherlands – to identify broad eDisclosure and document review trends within the corporate sector. The survey results show that the relatively new challenges presented by audio admissibility 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 a third (38 per cent) of major corporations across Europe. More than two-thirds (69 per cent) of the survey respondents also recognise the need to improve processes to deal with audio admissibility.
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.
*Survey conducted by telephone in November 2013, targeting 100 respondents from large blue-chip companies (defined as having more than $500M annual revenues) in the U.K., Germany, the Netherlands and Switzerland. Large European organisations in manufacturing and construction; retail; financial services; utilities; pharmaceuticals; professional services and IT/telecoms took part. Respondents included the CFO/Finance Director, Head of Compliance/Compliance Director or the Head of Legal/Legal Director/Head of Counsel.
[i] Email Statistics Report, 2013-2017. The Radicati Group, Inc
[ii] Gantz, John and David Reinsel “The Digital Universe in 2020: Big Data, Bigger Digital Shadows, and Biggest Growth in the Far East” IDC iView. December 2012
[iii] ‘JP Morgan ‘misled’ information from regulators’ Daily Telegraph, 19 September 2013
[iv] ‘JPMorgan rocked by second-biggest fine ever imposed by City regulator – £572million’ London Evening Standard, 19 September 2013