A large financial institution that is a major participant in the swaps market instituted an audio data retention policy to conform with newly enacted regulatory requirements which required swaps dealers to keep a record, for one year, of all oral communications concerning quotes, solicitations, bids, offers, instructions, trading and prices that lead to the execution of a swap, whether communicated by telephone, voicemail, mobile device or other digital or electronic media. As required by the regulations, the company records, retains, time-stamps and indexes terabytes of oral communications from a variety of devices used by hundreds of employees who are involved in swaps trading activities. The company’s legal department has been tasked with identifying and minimizing the risks associated with compliance with these new regulations.
Preservation and Discovery of Audio Recordings
The creation, retention and production of audio recordings is compulsory in certain regulatory contexts. For instance, the Securities and Exchange Commission (“SEC”), the Commodity Futures Trading Commission (“CFTC”) and certain other regulatory entities require that certain oral communications—e.g., telephone and “squawk box” conversations—be recorded and maintained for certain individuals such as Broker Dealers (SEC) or Registrants (CFTC).
These requirements permit regulators to review such data under a variety of scenarios. One scenario is a routine regulatory examination, during which regulators analyze whether a registered entity’s operations are compliant with applicable regulations—e.g., is the regulated entity in fact recording and maintaining audio files as required by applicable regulations. Regulators also investigate possible regulatory violations, and in such investigations, the content of the audio recordings themselves will be of primary importance. As a practical matter, regulated entities often strive to comply with requests for audio data in order to cooperate with investigations and because such requests are often already narrowly tailored to one or two individuals over a short period of time.
However, once created and maintained for regulatory or other purposes, audio recordings may be discoverable in civil litigation or subject to discovery in the context of criminal investigations. In the criminal context, in addition to the usual investigative powers of criminal prosecutors, certain regulations explicitly require registered entities to permit the Department of Justice to have access to all daily trading records.
In the civil context, electronically stored information (“ESI”) is discoverable under Federal Rule of Civil Procedure 34 if it is “stored in any medium” from which it can be obtained “either directly or, if necessary, after translation … into a reasonably usable form.” Audio recordings are, thus, treated under the Rules like any other medium, such as email, and may be considered discoverable ESI. Further, requests for audio data in civil discovery are likely, at least initially, to be coextensive with document requests and are, therefore, likely to cover many custodians over a long period of time. In such cases, compliance may be unduly burdensome.
Federal Rule of Civil Procedure 26 protects a party from being forced to produce ESI from sources that that are “not reasonably accessible because of undue burden or cost.” However, there has been little explicit guidance from the courts on the degree to which this rule may apply to requests for large amounts of audio data.
In other ESI contexts, courts have crafted novel approaches to balance discovery rights against burden and cost concerns, rather than preclude discovery entirely. For example, although courts typically rule that requests for production from email backup tapes impose an undue burden, some courts have allowed restoration of a limited set of backup tapes, at shared or shifted cost, where emails from the relevant period have not been retained. Given that certain audio recordings are required to be created and maintained for the purpose of production to regulators, a court could presume them to be reasonably accessible, and expect such regulated entities to maintain audio in a manner that provides for ready access.
Strategies and Best Practices
As a threshold matter, it is important to know what audio data is being recorded and how long it is being maintained. Typical examples of sources of audio data include:
The collection, processing, review and production of such sources of audio files have the potential to be costly and time consuming. However, there may be ways to attempt to narrow such broad requests—through negotiations with counterparties or by conducting preliminary discovery—that are likely to satisfy the regulator or the Court and help reduce the costs and burdens involved.
In conclusion, companies may face the prospect of reviewing and producing audio data in the regulatory, criminal and civil litigation contexts. Couple that possibility with the broad regulatory retention requirements and companies have ample reason to ensure they have appropriate systems in place to help effectively and efficiently comply with requests for audio data.
You have no pages selected. Please select pages to email then resubmit.