Tape-Recording of Registered Persons

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 has registered persons who were associated with disciplined firms in a registered capacity within the last three years, above the following size-based thresholds:

A "disciplined firm," for sales-practice cases, is a firm that has been expelled from membership in any securities industry self-regulatory organization, or is subject to an SEC order revoking its broker-dealer registration, in connection with sales practices. 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.
• Only the last three years of disciplined-firm association count toward the threshold. A registered person who left a disciplined firm more than three years ago drops out of the count. Do not shorten the period to one year; the period is three years.
• The percentage threshold falls as firm size increases (40% for 5-9; a flat count of four for 10-19; 20% for 20+). The smallest firms have the highest percentage threshold; the middle tier uses a flat count of four, not a percentage.

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. Recording a call may separately implicate federal and state wiretap-consent law, which the firm's compliance procedures address; that requirement comes from outside the taping rule.

Exam Tip: Gotchas

• The Taping Rule does not require customer notice of recording. Do not assume the taping rule forces a recorded-call announcement; any notice obligation comes from separate wiretap-consent law, not from the taping rule itself.

What Should You Check on Exam Day?

• Can you state the taping-firm threshold for a 10-to-19-person firm: four or more registered persons from disciplined firms?
• Do you know the deadline to establish written taping procedures: 60 days from FINRA notification or actual knowledge?
• Can you distinguish the one-time 30-day reduction window from the ongoing taping obligation once the threshold is crossed?
• Do you know the Taping Rule itself does not require the firm to notify customers that calls are recorded?