Tape-Recording of Registered Persons (the Taping Rule)

The Taping Rule is the disciplined-hire firewall. It targets firms that hire former registered persons from expelled or registration-revoked firms in concentrations that suggest the new firm may inherit problematic sales practices. The taping obligation applies broadly to all customer-facing telephone conversations, not only to conversations involving the disciplined-firm hires.

When the Taping Rule Triggers

A firm becomes a "taping firm" when it hires registered persons from disciplined firms above the following size-based thresholds:

A "disciplined firm" is a firm that has been expelled from FINRA or has had its FINRA registration revoked for sales-practice violations. Hiring from a non-disciplined competitor (a firm that voluntarily withdrew, was sold, or wound down without sales-practice discipline) does not trigger the Taping Rule.

FINRA notifies the firm when the threshold is crossed, or the firm has actual knowledge.

Think of it this way: The thresholds scale with firm size. A 5-person firm hits the trigger at 2 disciplined-firm hires (40%). A 100-person firm hits the trigger at 20 disciplined-firm hires (20%). Larger firms can absorb more disciplined-firm hires before the rule triggers because the concentration is more diluted.

Exam Tip: Gotchas

• The Taping Rule only triggers from hiring out of disciplined firms (expelled or registration-revoked). Hiring from solvent, non-disciplined competitors does NOT trigger taping. The exam will hand you a fact pattern with a firm hiring from a defunct competitor and ask whether the rule applies. It does not unless the defunct firm was expelled or had registration revoked.
• The percentage thresholds increase as firm size increases (40% for 5-9, 25% for 10-19, 20% for 20+). The smallest firms have the highest concentration threshold because two disciplined-firm hires at a 5-person firm is more concerning than two at a 100-person firm.

Taping-Firm Obligations Once Triggered

Once the Taping Rule triggers, the firm must:

• Establish, maintain, and enforce special written procedures within 60 days of FINRA notification or actual knowledge that the threshold has been crossed
• Tape-record all telephone conversations between registered persons of the firm and existing or potential customers (the recording duty extends to all registered persons, not just the disciplined-firm hires)
• Review the recordings for compliance with applicable rules (suitability, communications standards, AML red flags, churning, unauthorized trading)
• File quarterly reports with FINRA describing the firm's supervision of the taping program

The 60-day window to establish procedures runs from the earlier of FINRA notification or the firm's actual knowledge. A firm that knows it has crossed the threshold cannot delay until FINRA writes a letter; the clock runs from actual knowledge.

Exam Tip: Gotchas

• The taping obligation extends to all registered persons of the firm, not only the disciplined-firm hires. Once the threshold is crossed, every registered person's customer calls must be recorded. The exam tests this as: "Whose calls are taped?" The answer is "all registered persons," not "only the new hires."
• The 60-day procedure deadline runs from FINRA notification or actual knowledge, whichever comes first. A firm cannot wait for FINRA to send a letter if internal knowledge predates the letter.

Retention of Recordings

Tape recordings are subject to a specific retention schedule:

• At least 3 years total retention
• First 2 years in an easily accessible place

This pairs with the SEC books-and-records retention framework but is shorter than the 6-year retention required for customer-account records under that framework.

Exam Tip: Gotchas

• Tape-recording retention is 3 years total, with the most recent 2 years easily accessible. Pair this with the SEC communications retention rule (also 3 years / 2 years easily accessible) and contrast with customer-account-record retention (6 years).

The 30-Day Reduction Window

A firm that receives notice of taping-firm status has a one-time 30-day window to terminate registered persons to fall below the threshold and avoid the taping obligation. This is a single-use option per firm: it can be exercised once, not every time the threshold is crossed.

If the firm does not terminate hires within 30 days, the taping obligation attaches and the firm must establish procedures within the 60-day procedure deadline.

Exam Tip: Gotchas

• The 30-day reduction window is one-time per firm. A firm cannot repeatedly cross the threshold, terminate down, hire again, and re-terminate. The first reduction-window use is the only one.
• The 30-day window starts from notification of taping-firm status, not from any later date. If the firm misses the window, it cannot regain the option.

Why This Rule Matters in the Communications Context

The Taping Rule lives under the FINRA supervision framework, but the testable content overlaps the communications regime in two ways:

• Telemarketing rules: a taping firm's outbound telephone calls are still subject to time-of-day and DNC rules. The taping is layered on top of normal telemarketing controls
• Recordkeeping under the SEC books-and-records framework: tape recordings are communications subject to the general 3-year retention rule, with the special taping-rule procedural overlay

A taping firm that fails to scrub the national DNC registry violates the telemarketing and taping rules simultaneously: the call is illegal, and the recording of the illegal call is itself part of the supervisory record.

Exam Tip: Gotchas

• A taping firm is still subject to all other communications rules, not exempted from them. The exam tests this as: "Does taping satisfy the firm's DNC obligations?" The answer is no; taping is a supervisory overlay, not a substitute for substantive compliance.

Disclosure to Customers

The Taping Rule does not require express disclosure to customers that calls are being recorded. Federal wiretap law is a one-party-consent rule (the firm's consent suffices for federal purposes), but state wiretap laws vary:

• One-party-consent states: only one party (the firm or its rep) needs to consent; no customer disclosure required
• Two-party-consent states (also called all-party-consent): both parties must consent. Notable two-party-consent states include California, Florida, Illinois, Maryland, Massachusetts, Pennsylvania, and Washington

A firm operating across states should adopt the most restrictive standard (two-party consent) by including a recorded notice at the start of each call: "This call may be recorded for compliance and quality-assurance purposes."

Exam Tip: Gotchas

• The Taping Rule does not require customer notice of recording, but state wiretap law often does. A firm subject to two-party-consent state law must include a notice at the start of each call regardless of what the FINRA rule says. The exam tests this as a layered-rule scenario: the taping rule plus state wiretap law plus telemarketing rules all apply.