Investment firms no longer have a choice: they must automate market surveillance workflows to mitigate risk. While it’s understandable that many firms would prefer to prioritize growing business models through technology, it’s no longer sustainable to leave market surveillance behind. Failing to support compliance officers through automation is now an unnecessary and risky approach.
Here are two big reasons why. First, COVID-19 has moved firms into an unprecedent operating environment. With most people now working from home, oversight functions are strained by having to accommodate new technologies and ways of working, alongside behavioral shifts. Combined with the unpredictable market volatility experienced at various stages of the pandemic, conditions are ripe for market manipulation and insider trading. As the months pass by, the gaps and inefficiencies in associated business risk processes will only be amplified.
The second factor is that while a grace period was granted by regulators for firms to adjust to the “new normal”, all signs point to this period being over. Going forward, firms are expected to maintain the same high standard of control integrity as before. Firms should also be able to identify any blind spots that were exposed during 2020. Judging by the advanced analytics capabilities regulators advertise they use, they are capable of rapidly connecting the dots on market manipulation and insider dealing schemes. Firms need to ensure their own capabilities follow suite.
Automation can help in a number of ways. The technology now widely available is ideally suited to analyzing large quantities of data rapidly. This is a key benefit for identifying market manipulation events, which demands trawling through reems of data. Firms still trying to keep pace with legacy systems and processes are behind the curve.
Automation also improves the quality of review. Automating analysis and workflow around trade surveillance cuts down the time it takes to collate data, and increases the time compliance officers and supervisors can spend actually doing their job – assessing and controlling regulatory risk. Automation also helps mitigate compliance and supervisory functions from getting overloaded with replying to time-consuming routine inquiries, as well as the focused regulatory inquiries that will undoubtedly follow this period of volatility.
Finally, automation sends the right message to regulators. In cases of market abuse violations, one of the first things that regulators want to see are the systems and controls that a firm had in place to catch the activity. Firms that can demonstrate that they had invested in robust automation capabilities will be in a stronger position.
Scott Burke, Regulatory Product Manager at RIMES, comments: “Automated market surveillance is an imperative for firms, but it is not a panacea. Alongside the right technology investments, firms need to leverage subject matter experts to ensure the systems are calibrated to fit their business needs and market conditions.
“Automated market surveillance can deliver the timely and accurate capabilities compliance officers need and regulators are looking for, but only if the technology and scope of service is sized appropriately to a firm’s unique business model and associated risks.”
Learn how firms responded to the market surveillance challenges of 2020, and how they’re moving forward into 2021, by joining Greenwich Research Associates and RIMES Technologies for a webinar on February 18th, 2021 at 11:00 EST. Register now.
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