How Tech Can Meet the Challenges of Increased Market Surveillance

How Tech Can Meet the Challenges of Increased Market Surveillance

Helen Bevis

Director, Financial Markets Compliance at SteelEye

Views 295

How Tech Can Meet the Challenges of Increased Market Surveillance

10.04.2019 01:15 pm

There is growing pressure across the financial services industry for firms to detect market abuse and ensure their companies protection against manipulative market risk. With the emergence of regulations such as the Markets in Financial Instruments Directive II (MiFID II) and the Market Abuse Regulation (MAR), financial services firms are now required to comply with comprehensive demands aimed at curtailing market abuse and regulating trade activity.

But as it stands, many of these institutions are held back by out-dated systems in their attempts to monitor, record and report significant volumes of trading and communication data. With recent cases such as the Libor and Foreign Exchange (FX) trading scandal, the manipulation of ISDAFIX in 2019, as well recent controversy of rate-rigging at Barclays illustrating the increasing willingness of  regulators to implement fines, it is more crucial now than ever that financial services firms are equipped to meet these regulatory challenges.

Thankfully, new technologies have emerged in recent years that provide considerable benefits for financial services firms to help them address the regulatory challenges of trade and communications surveillance. Such solutions not only simplify and increase the efficiency of compliance processes, but they also extend beyond regulation, giving firms a holistic view of their trading data and providing insights that can help transform their own operations.

Complex new challenges

Introduced in 2016, MAR upped the ante [on what], presenting a set of new challenges for financial firms. Under these new regulations, financial services firms are required to consolidate all of their trade and communications data linked to any financial interactions, ranging from trade and internal communications, orders, trade reports, employee behaviour and CRM data. This data spans a breadth of financial instruments across venues, asset classes and regions. Adding further complexity, the regulation also demands that firms monitor and report not only successful instances of market abuse, but all attempted cases.

The result is an overwhelming demand for comprehensive data collection and integration methods, as well as the need for complex monitoring and analysis capabilities suited to intelligently sort sift the varying trading activities, and identify and manage risk where necessary.

To date, existing systems and practises have been ill-equipped to manage these new and intricate challenges, but as new methods are evolving, this is beginning to change. So, how has technology enabled a more streamlined compliance process that has met these challenges?

1. Better data

Many of the older, legacy systems are unable to integrate the masses of data across all the different sources, such as emails, instant messaging and phone-calls. This has negatively affected a firm’s ability to detect events that are often composed of multiple activities – increasing the possibility of missing key signs of market abuse and exposing companies to liability. It’s hardly surprising therefore that in a recent Chartis Survey, data quality and integration were cited as the second biggest challenges to financial firms in their surveillance obligations.

New technologies have simplified this, however. Increasingly holistic solutions enable companies to capture data from disparate systems, including trading and market data and all data relating to electronic and voice communications. Once collected, these solutions can consolidate and format onto one platform that can be viewed on a single interface, streamlining and simplifying the process.

2. Intelligent analysis

Storing the data in one place is the first step companies should take. Compliance officers are looking for evidence of tools that can spot and highlight suspicious activity, often before it has even taken place. Giving firms the right analytics tools to effectively use analyse vast reams of data is therefore essential.

Machine learning and Artificial Intelligence (AI) have come to the forefront in this regard. These capabilities, through advanced data relationships and behavioural analytics, allow firms to identify patterns in their data. This enables them to understand normal activity, and as such, allows them to identify deviations in behaviours. As a result, firms are able to more easily identify risk and forecast areas of concern that can be more readily analysed, creating a solid basis for an investigation.

3. Reducing the regulatory burden

Complying with such a comprehensive programme is challenging for all businesses, forcing a large re-allocation of resource and budgets.  But it is the smaller wealth and asset managers that relied on their sell-side counterparts for the majority of regulatory matters that are feeling the most impact of the new regulations. These firms have fewer resources to dedicate to complex compliance requirements, and lack the necessary controls, particularly in regard to insider information and post-trade surveillance, making compliance a complex and tedious task.

But while this may sound complex and expensive, advances in technology has made it affordable for smaller institutions, helping to rid them of the burden and liability of manual surveillance and reporting. By providing a more efficient, smarter system, smaller firms can manage their regulatory obligations, bring their surveillance data together for analysis in a much more affordable and accessible way.

4. Driving further insights

Moving beyond the pure regulation requirement, the increased focus on trade surveillance can, and should, be seen as a strategic and insightful tool for financial services companies. Indeed, recent research by EY stated that already one third of firms are developing their surveillance capabilities for internal and operational reasons beyond simple compliance.

Emerging trade surveillance solutions allow companies to consolidate and format all of their data that can be viewed on one single interface, giving firms a forensic view of how their business operates day to day. This can forecast and predict patterns of behaviour, establish what does and does not work, and ultimately help firms achieve greater efficiency to improve and optimise their profitability and performance, giving them a competitive edge.


Meeting the challenges of effective and comprehensive trade and communications surveillance is clearly no easy task. But if organisations can begin to realise the benefits that a robust data capture system can provide, they will begin to appreciate the long-term opportunities that go beyond compliance, helping transform their operations.

Latest blogs

Euan Davis Cognizant’s Center for the Future of Work

The fintech antidote – why banks need to be more resilient

The European banking industry is under extreme pressure. Although the looming risk posed to financial stability by Brexit is perhaps the most notable risk, 2019 is looking like it will be a challenging year all round. To survive, simply ’doing’ Read more »

Nikhil Sengupta Five Degrees

The Future of Financial Regulation

The rise of big tech: setting new expectations The fundamentals of what businesses and individuals perceive as banking have evolved from a traditional high street model to a complex ecosystem of financial and technology providers - all working in Read more »

Chris Skinner Financial Services Club

Will a Global Platform Connect All of Our Money?

When I talk about FinTech, I often reflect on the first time I encountered what I would, today, call a truly FinTech firm. It was on March 30, 2005, and a newly formed firm presented at the Financial Services Club an idea. The idea was to connect Read more »

Lina Andolf-Orup Fingerprints

Finger on the pulse! 2019’s big biometric news so far…

It’s already Q2! It has been a momentous few months for biometrics, so it’s not surprising the year is passing so quickly. New products launched, new milestones reached, and new market trials initiated. Biometrics is expanding and advancing rapidly Read more »

Stan Swearingen IDEX Biometrics

How Asia is leading the way for fingerprint biometric innovation in the payments industry

PIN verification will soon become a thing of the past. Thanks to advances in fingerprint biometric technology, the reality of being able to authenticate a payment with a simple touch of the finger is set to explode across the globe. Whilst some Read more »

Related Blogs

Linda Jamison Wolters Kluwer

Regulatory Relief in The USA: A Wolters Kluwer View

Regulatory relief for mid-size banks in the US is here– and it’s a potential game changer when it comes to implementing the right regulatory reporting IT systems. With that in mind the nation’s banks would be well advised to adopt an integrated Read more »

Ivy Schmerken FlexTrade

MiFID II Regulations to Impact U.S. Asset Managers

North American broker-dealers and asset managers domiciled in the U.S. are watching their European counterparts gear up for compliance with MiFID II. But will MiFID II affect U.S. broker-dealers and asset managers based in the U.S.? Could the Read more »

Steve Grob Fidessa

Mexico Blues

Back from a couple of weeks in Mexico where it seemed the whole world was going steadily insane (or maybe that was just the tequila). Anyways, it was reassuring to start the week with another “wow is that what they really meant?” moment whilst Read more »

Chris Skinner The Financial Services Club

America’s Banking Regulations Strangle Innovations

Only three new banks have opened in the United States since 2010.  Before the financial crisis, over 100 banks set up shop each year, on average, according to data from the Federal Deposit Insurance Corporation, the agency that approves new banks. Read more »

Simon Stickley Capco

GDPR Implementation - Ready, Set, Go!

It’s a major regulatory development and there are just two years to prepare for compliance. The time to understand the impacts and implications - and to get ready for implementation - is now. Read more »

Free Newsletter Sign-up
+44 (0) 208 819 32 53 +44 (0) 173 261 71 47
Download Our Mobile App
Financial It Youtube channel