RegTech Intelligence

Breaking down barriers: the new holistic surveillance paradigm

At this year’s RegTech Capital Markets Conference a debate took place on the benefits of using RegTech for trade surveillance in the context of the evolving technical landscape, led by expert industry professionals on compliance and surveillance. Taking into consideration the volume and quality of data firms are expected to monitor, whether the current system can cope and how technology can be used to solve any problems.

It is clear that moving away from spreadsheets to technology such as artificial intelligence (AI), process automation and machine learning could be of significant use in the surveillance space. The industry is starting to recognise how innovations in RegTech can be used to help deliver against obligations and provide practical solutions taking into consideration the waves of challenging regulations that have been introduced over the last couple of years. Although technology can be overwhelming with the complexity of the volume and variety of regulations being introduced, it can be leveraged to ensure the focus is on solving business problems.

Governance processes are fundamental in maintaining the surveillance program effectively and to avoid chaos. Constantly running to cover every new regulation and the cycle of continuously being audited and reviewed by regulators who identify gaps has, at times, lead to a lack of focus on governance and long term thinking has often suffered.

Another important issue that was discussed at the conference is how Interactive brokers were recently fined £1 million by the FCA for failure to submit suspicious transaction reports, not taking reasonable care in post trade surveillance systems and not doing enough monitoring or testing of their post trade surveillance systems. There have been comments made on how worrying this is because of how it will reflect not only on the state of interactive brokers trade surveillance capabilities but also more widely the industries capabilities.

This penalty is relevant to most firms, to an extent, as surveillance activities have become increasingly centralised, often outside of the UK, because the parent office is placed elsewhere, or it is cheaper to have teams based abroad. This comes back to accountability and oversight; there isn’t enough understanding of regulations and staff haven’t been properly trained or the training has not been overseen properly, hence proper market abuse controls have not been accurately implemented.

The Market Abuse Regulation (MAR) was implemented to ensure firms beefed up their monitoring functions as well as focused further up the chain when looking for market abuse. Along with MAR, MiFID II has also been challenging to implement from a trade surveillance perspective and most of the industry is still working to overcome these challenges. MAR, in tandem with MiFID II has had a significant impact on current provisions for technology and infrastructure. The aspects of MAR that came into force in relation to additional trading volumes and the capture of more transparent data are issues that still need to be tackled.

Technological advancements should successfully be able to help address the challenges of MiFID II and MAR. This can help firms deal with the volume and variety of data, spanning from trades and trade orders to communications and trying to connect the two, relying less on humans and more on machines to crunch this data is the only way forward. With the aim to reconstruct all trades related communications and making sure it is accurate and effective will help satisfy firms’ regulatory obligations. Insider dealing could also be tackled with improved technology; the notion of cross market and cross product manipulation is an area that is starting to be addressed properly.

Compliance functions, that are still in the previous generation of technology, need to be enhanced however there is a big budget restriction within the industry, a point everyone agreed on at the conference. The use of automation will be key to reducing financial crime and the growing cost of compliance. These improvements could potentially lead to a more open and agile regulatory environment.

JWG has several RegTech Special Interest Groups (SIGs) focused on doing just that. They were established to bring all parts of the industry together to discuss how to best match compliance challenges with the latest technological solutions – covering trade surveillance, KYC/AML, and reporting and reference data. Want to get involved? Please contact Will Payne on for more information.


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