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The Quiet Revolution in Market Surveillance Technologies

Over the past two years, trade and market surveillance has become increasingly important for firms across the sell- and buy-sides. Emerging regulations are a key driver of this trend, with two in particular adding to firms’ surveillance obligations: the Market Abuse Regulation (MAR) and the Markets in Financial Instruments Directive (MiFID II). These regulations are increasing the compliance burden on firms, as they must do more to proactively identify and report on suspected instances of market abuse, including insider trading.

The market for surveillance technologies is currently booming. According to EY and Chartis, global expenditure on trader surveillance, including systems for monitoring trades, emails and voice calls, increased by 5% in 2017, reaching $758 million. However, according to an opinion piece by Glenn Perachio, Ernst & Young (UK) LLP Partner and EY Financial Crime Market Abuse and Trader Surveillance Solution Leader, this market is set to change as emerging technologies such as Artificial Intelligence, automation and machine learning promise to create a new generation of smarter, more efficient and more effective trader surveillance systems.

This is the technical side of the market surveillance revolution: ever more advanced capabilities enabled through advanced Cloud-based services. However, there’s another side to the revolution too: scale. According to EY and Chartis, some 70% of financial sector firms are in the process of upgrading their market surveillance systems. In order to meet the challenges of MAR and MiFID II, these firms are looking for wholesale transformation – not the incremental changes that were common in the past. This step up in the tempo and range of regulations mean that firms must cover a wider array of asset classes and be prepared to adapt continually as the regulatory environment continues to change.

For Glenn Perachio, developments in market surveillance requirements mean that firms must enhance efficiency by applying smart technologies. Doing so will enable compliance to focus on deep data-driven investigations. It is a view that RIMES agrees with. Where we would go further is to stress the importance of partnerships to successful market surveillance.

In a world where the regulatory environment is increasing in complexity and the range of new technologies grows by the day, firms can no longer go it alone with in-house systems development and management. By working with technology partners in the Cloud, firms can ensure the surveillance and wider compliance technologies they use are always the most up-to-date available. Meanwhile, leveraging the economies of scale enabled through partnerships will allow firms to increase the sophistication of their compliance efforts, while reducing the overall cost of ownership.

Market surveillance will be discussed in depth at RIMES’ upcoming RegTech Market Surveillance Conference, which will take place in New York on June 13. To register, email events@rimes.com.

 

 

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