Financial institutions are up in arms about the implications, both for recording communications with their clients and for watching the activities of their own employees.
Banks need to win exemptions in the interests of 'legitimate business control', says Timothy Baker of the London Investment Banking Association, which is lobbying to maintain the status quo.
The law currently says that phone calls and other communications can be recorded without permission.
However, the Regulation of Investigatory Powers Bill - due to come into force later this year - says communications can only be monitored with the permission of the parties concerned.
In addition, the European Human Rights Bill, also due to become law this year, could allow employees to argue infringement of privacy if their communications are monitored.
Traditionally financial institutions have monitored communications to prevent fraud. Traders routinely have their calls taped. Activities on the Liffe floor are videoed and despite banks' official coyness about monitoring, it is regarded as an open secret that surveillance is commonplace in many organisations.
The internet has added a new dimension. As providers of internal systems, employers must take responsibility for material in circulation and could be held liable for offensive material such as pornography or defamatory e-mails.
According to Naomi Feinstein, a lawyer with Lovells, accessing pornography from the web is rife at many firms in the City of London. In one case, said Feinstein, a bank's computer system was substantially slowed down by the volume of pictures downloaded and stored from the web.
E-mails too can cause problems. 'The use of e-mails as evidence in proceedings of defamation and harassment will become more and more commonplace,' says Daniel Pavin of solicitors Taylor Joynson and Garrett.
'At the moment, e-mails are regarded in the same way as having a chat in the pub and people aren't guarded in their comments. In fact, an e-mail is a permanent record that mushrooms - it may be sent to one person who will then send it two, and so on.'
Despite these concerns, banks are quick to deny allegations of Orwellian surveillance. JP Morgan, Salomon Smith Barney and Merrill Lynch are among those denying the use of monitoring beyond the trading floor.
Dresdner Kleinwort Benson is one bank that reserves the right to record telephone calls outside the dealing floor, but says it rarely exerts it.
Nevertheless, employers are now concerned that the European Human Rights Bill could put them in an awkward position. One head of HR complains: 'It is illegal for us as a company to have pornography on our system, but we will be invading individuals' privacy if we try to monitor them.'
Liba is lobbying for the status quo in relation to the Regulation of Investigatory Powers Bill. 'It is important that the proposed regulations, in defining what is lawful, should cover all of the recording and monitoring practices which firms currently use for legitimate business control purposes,' says Liba's Baker.
The solution, says Daniel Pavin, is to avoid any covert monitoring of employees.
'If monitoring of calls, e-mails and the internet does take place, employers should have in place well-publicised policies and procedures,' says Pavin.
'Businesses should think carefully about including standard wording in e-mails informing the recipient that e-mails may be monitored.'