by Soozin Kang
No longer can financial institutions afford not to take a proactive approach towards the broad scope of surveillance. Historically, every time regulators have tightened the rules around compliance there has been a reaction against firms or individuals who took part in market abuse activities. Although it’s not new that firms are required to identify intent to commit market abuse, it’s becoming increasingly challenging as new ways of buying and selling orders in the market are being demanded. The life of a trader no longer sits on the trading floor but is on the move and has trended towards working out of their homes and using personal devices for work as a result of the COVID-19 pandemic.
While firms have tried to impose policies to restrict communication channels for employees working from home, it’s inefficient, difficult, and unrealistic. It was already difficult to monitor this in the workplace environment but with the pandemic, there is a new level of complexity in monitoring employees from their homes, which involves privacy issues.
Regardless of these challenges, regulators expect firms to be accountable for the realities of where market crimes happen. This can happen beyond the reach of imposed policies in the workplace in today’s world. Identifying the intent to commit market abuse lies deep within the firm’s trade and E-Comms data. Trade data can explain what crimes are being committed, while communication data can explain the why. Both are needed to detect and monitor illicit behavior to facilitate effective institutional intervention.
Surveillance in trade and E-Comms share the same goals to mitigate risk, prevent regulator sanctions leading to significant crimes, and protect the firm’s reputational damage and shareholder loss. An E-Comms surveillance solution is only as good as the integration between trade behavior and trade surveillance data that provides the institution continuous risk intelligence. Capabilities to consider for a well-rounded E-Comms surveillance solution are dependent on its integration with trade and E-Comms data, continuous risk intelligence, and ensuring that it is future proof for evolving regulations and growing E-comms channels.
Integration with Trade and E-Comms Data
A consolidated platform that combines data ingestion and analytics delivered in a foolproof visualization tool for both trade and cross-channel E-Comms data is powerful and super-efficient. This is especially true when firms are asked to comply with regulators’ requests to deliver timelines of trades and communication or even a look back audit of investigation activities. With an integrated platform, this can be done with minimal manual configuration and high-powered search. Part of this integration, specifically for e-comms data, should capture all channels of trade communications (e.g. Slack, MS Teams, WhatsApp, Reddit) with the flexibility to add on new channels.
For compliance teams, analyzing e-comms alerts against trade alerts allows for proactive investigations and instant root-cause analysis. A pattern of poor behavior and trade surveillance data can sometimes uncover hidden conduct risks, insider trading, and collusion. If compliance teams can identify these patterns early on, firms may be able to prevent regulatory actions and negative headlines.
Continuous Risk Intelligence
A streaming analytics platform with advanced time-series analysis, with supported automated alert management, allows for continuous intelligence backed with an integrated library of case management tools for efficient investigations to help mitigate risk. Manual processes are no longer adequate for detecting and preventing multiple types of market abuse against the wide range of electronic methods. The complexities of cross-channel monitoring in E-Comms are too laborious and inefficient. This continuous intelligence approach with automation will increase efficiencies and provide accurate detection and deliver lower false positives.
Future Proof for Evolving Regulations and Growing E-Comms Channels
With E-Comms surveillance, regulators expect compliance teams to capture and monitor 100% of trader communication channels regardless if there is a firm policy or not. A comprehensive monitoring tool is needed to respond to the multitude of electronic channels. Yet it must be agile to prepare for future channels that need monitoring and the ability to manage evolving regulations, without delay.
Although the challenges to comply with regulation standards seem never-ending, there are surveillance solutions that have the global experience and reputation to support financial institutions. E-Comms surveillance operates on behavioral data and is typically the starting point that leads to identifying market crimes that are captured in trade surveillance. The two go hand-in-hand. Surveillance in trade and E-Comms share the same goal to mitigate risk, prevent sanctions, and protect the firm’s reputational damage and shareholder loss. An integrated approach between trade and E-Comms surveillance can help firms improve market risk detection while reducing overall risk and cost of compliance.