Series 7: 13.3.3.1 The Taping Rule

13.3.3.1 The Taping Rule

Some member firms must adopt special supervisory procedures for the recording of telemarketing activities and other phone contacts with customers and potential customers. A firm is subject to this rule if it employs an excessive number of registered persons who worked for a disciplined firm within the past three years. A disciplined firm is one that has been expelled from membership in any self-regulatory organization or is subject to an SEC order revoking its registration as a broker-dealer or futures commission merchant.

The special supervisory procedures require the tape-recording of all telephone conversations between the member firm’s registered persons and existing and potential customers. A member firm must also establish reasonable procedures for reviewing the tape recordings to ensure regulatory compliance. These procedures must be implemented within 60 days of the firm learning that it is subject to the taping rule. All tape recordings must be retained for not less than three years from the date the tape was created. Within 30 days of the end of each calendar quarter, the member firm must submit to FINRA a report on the member firm’s supervision of the telemarketing activities.

Whether a firm is subject to the taping rule depends on the firm’s size, as measured by the total number of registered persons it employs (representatives and principals combined). A firm becomes subject to the taping rule if the number of registered persons from disciplined firms reaches or exceeds the following thresholds: 40% for firms with 5–9 persons; 4 for firms with 10–19 persons; and 20% for firms with 20 or more persons.