Key Takeaways from the PWC Market Abuse Surveillance Survey 2019shieldadmin
Financial markets are becoming more technology-driven. As a result, savvy traders with less-than-scrupulous intentions can use an increasingly prolific stream of e-Communication methods to evade traditional compliance monitoring. The EU Market Abuse Regulation (MAR) and other regulatory directives are aimed at detecting, punishing, and deterring just this type of wrongful behavior. Financial institutions across the continent have implemented surveillance platforms designed to capture an increasingly broad range of financial transactions, electronic communications, and trade-related data in order to comply with these laws and effectively deter market abuse.
Ensuring company-wide compliance in an increasingly complex regulatory environment remains a challenge for the regulated financial industry. Fortunately, however, there are a number of tools available to help financial institutions achieve and maintain compliance. In March of this year, the PwC released a Market Abuse Surveillance Survey – a worthwhile read for anyone concerned with establishing and maintaining compliant eComm surveillance system. As an avid follower of EU compliance in my own right, I wanted to take the time to note some key takeaways from the PwC report. I’m hoping that my observations can help regulated financial institutions find compliance solutions that are not only suitable under applicable laws, but also provide added value to their operations – but if not, at least it’ll be a good read for my fellow enthusiasts.
The Slow March of Progress
The Great Recession was attributable to market errors that should never be repeated. The MAR and similar regulations are meant to address this very issue, but questions remain. Why is progress in this field so slow? Is it a lack of technology, or lack of operational or infrastructural development? Is it some challenges associated with the sheer mass of data that new financial firms must collect, or are there inherent challenges that require financial firms to adapt to?
The march toward achieving full regulatory compliance for regulated financial firms is slow. For some, it’s too slow. This year, financial institutions have already spent billions on surveillance. This money has gone towards improving compliance operations and implementing surveillance technologies. the investment financial services companies have made in improving compliance has facilitated an ongoing evolution in the technologies facilitating the surveillance of eComms and other regulated activities. We have seen meaningful progress, but challenges remain.
Regulated Financial Institutions Face Ongoing Challenges
Although the MAR took effect three years ago, many banks still struggle to comply with every element of the regulation. Much of this can be pinned on the fact that the regulation expanded the scope of communications, financial instruments, and market activities that financial institutions are required to monitor. The majority of the 21 financial institutions that responded to PwC’s survey were still working to address coverage gaps, and providing effective surveillance over all regulated products has proven to be among the greatest challenges. This data is outstanding; so much so that it reflects a lack of enforcement, a massive lack of technological capacities to address new rules, or a massive interpretation of the law. While I can’t do anything about a lack of public enforcement or misunderstanding of legal duties, at least I can help with the lack of technological tools.
I would argue that firms incur significant costs from inefficient processes, lines of defense, and other components of effective compliance that do not communicate properly. Alternatively, they may lack the tools necessary to facilitate alignment across compliance control functions. To achieve an advanced and integrated approach to surveillance, companies must accept the fact that technological upgrades are necessary.
The #1 challenge to date – False alerts!
The most immediate barrier to compliance in today’s data-driven monitoring environment is the perpetuation of false alerts that occurs with the accumulation of monitoring data. Within a single year, 17 of the financial companies that participated in the PwC survey were forced to address a total of over 40 million trade and eComms compliance alerts. 99.99 percent of the alerts were proven false upon further investigation, which means that financial institutions are wasting valuable time and resources following up on misleading alerts.
Building a software platform that can manage trade, eComms, and voice data in a manner that both meets regulatory requirements and provides valuable contextual information that can be used to improve operations is no simple undertaking. For some vendors, building surveillance software solutions that satisfy their customers’ needs remains a work in progress. However, enterprise software companies are responding to the strong appetite financial institutions currently have for continued investment in surveillance and compliance technologies.
Holistic Integrated Surveillance Structures
Technological solutions for collecting and integrating various types of eComms and voice data are limited. Many platforms can achieve integrated surveillance, but they are plagued by latency and strain IT efforts. As we know, however, in order to be truly integrated, a surveillance solution must be designed to connect the various pieces of compliance-related data financial institutions collect every day with other relevant information and analyze this data in an integrated manner (considering wider scope). Case management systems and similar technologies have offered a helpful proxy, but modern financial institutions need more effective holistic surveillance technologies.
Regulated firms are coming around to the idea that Integrated surveillance is not possible without effective technological solutions. Financial companies are seeking out new platforms for data management and compliance, but while the search has begun, we are still far from maturity in the eComm and Integrated surveillance domain.
Many Third-Party Surveillance Solutions Fail to Meet Expectations
EU financial regulation requires a technological approach. However, finding software sophisticated enough to provide an integrated 360 surveillance is easier said than done – particularly with respect to monitoring and analyzing eComms and voice data. Most participants in the PwC survey were dissatisfied with their eComms and voice surveillance solutions. Only 45 percent of financial companies surveyed expressed that they were pleased with their eComms monitoring solutions, and 40 percent were satisfied with their voice data monitoring solution. This degree of dissatisfaction foreshadows an evolution in monitoring technologies, which must rise to meet the growing demand for more sophisticated surveillance solutions.