Securities and Exchanges Board of India (SEBI) has made it mandatory for fund managers to record the calls with their clients, as evidence of the client placing an order. SEBI released the new mandate after taking note of a large number of investor complaints on “unauthorized trades”. The circular from SEBI on call recording mandates all fund managers to keep a legally verifiable record of the orders placed by the clients.
As the Covid-19 pandemic unleashed all across the country, financial firms including many fund managers opted to work from home. It led to the increased use of mobile communication and the use of WhatsApp for business transactions through calls and chat messages. These business transactions remained largely unrecorded and that led to many disputes, which prompted SEBI to come up with the new mandate on recording calls and messages. It is now mandatory for financial firms to do WhatsApp recording for business calls and instant messages.
The commodity derivative market in India has a regulation in place that requires brokers and fund managers to execute the trade only after keeping the sound recording as proof of the trader placing such an order. The new mandate by SEBI on fund managers is toeing the same line to counter the menace of unauthorized trading in stock trading. The abundant use of WhatsApp in India for trading processes has made it imperative for fund managers to follow WhatsApp capture protocols to keep records of their business transactions. Following WhatsApp compliance rules has thus become one of the chief concerns of financial firms and fund managers.
The new mandate
According to a notification from SEBI, “Further, wherever the order instructions are received from clients through the telephone, the stockbroker shall mandatorily use telephone recording system to record the instructions and maintain telephone recordings as part of its records.”
The circular further says, “When a dispute arises, the burden of proof will be on the broker to produce the above records for the disputed trades.”
As per the mandate, fund managers are required to maintain the call recordings as well recordings of text messages for a minimum period for which the arbitration accepts investors’ complaints as notified from time to time. Currently, the time period is set as three years. However, if disputes have been raised on any stock or mutual fund trading, then the call and chat WhatsApp recordings are to be maintained till the final resolution of the dispute.
The SEBI mandate confirms that in the case of a dispute the burden of proof will be on the fund manager. The evidence could be an email, a text message via SMS or WhatsApp or WeChat message, or could be a call recording. Since most customers call fund managers over a telephone call, SMS message, or WhatsApp message for orders in India, financial firms are well-advised to use mobile archiver solutions. Firms could then record SMS messages, monitor phone calls and do WhatsApp recording, which could help them in producing records during litigations.
Benefits for all stakeholders
The new mandate from SEBI could be of great benefit to investors as well since fraudulent fund managers can no longer escape due to the absence of substantial evidence. Financial firms could benefit as communication record like call recording and chat recording make compliance easier and could prove to be beneficial during various arbitrations. WhatsApp recording of calls and chats as demanded by the mandate can also help fund managers from false investor claims about losses, apparently due to the investor’s own wrong investment decisions.
Concerns raised
A grouping of stockbrokers has termed SEBI’s new mandate as “not practical”, as they claim that monitoring of communications with clients and following WhatsApp compliance regulations would be difficult as they use different channels including mobile phones and WhatsApp messages for stock and mutual fund trading. In 2013, SEBI had to defer a similar mandate due to opposition from brokerage associations.
Unlike in 2013, however, technological advancements have made it possible to record SMS messages, monitor phone calls and ensure WhatsApp recording through the use of mobile archiver solutions, which could easily solve financial firms’ need for recording chats, calls and other communication for WhatsApp compliance.
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TeleMessage offers cross-carrier and international mobile text & calls archiving for corporate and BYOD phones. Visit our website at www.telemessage.com to learn more about our mobile archiving products.
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