COVID-19, lockdown, working from home and self-isolation are now well established across the financial industry, but how are compliance teams impacted? A recent survey on market abuse monitoring from SteelEye found that almost half (40%) of the 80 market participants have seen their compliance budgets increase since the lockdown, with monitoring communications seen as the biggest challenge.
This rapid response suggests an admirable commitment to compliance and oversight – but it also highlights the challenges presented through remote working at this scale, and the vital role of technology in providing solutions that can help firms cope with this changing landscape.
With the UK’s fledgling SMCR regime about to hit its six-month birthday, senior managers have faced a baptism of fire as they struggle to adapt to the new normal. The FCA has made it clear that its regulatory expectations under SMCR remain a priority (with numerous ‘Dear CEO’ letters to asset managers and alternative investment firms in previous months warning against falling standards of governance), despite a certain level of flexibility issued around the Covid-19 pandemic. Senior managers therefore need to check up on their regulatory processes and procedures, to enable them to stay on top of their obligations – including, for example, a complete review of internal systems and workflows to ensure they are fit for purpose for a remote workforce.
“Entire workforces have moved into working environments where the potential for conduct risk has increased, whilst at the same time the ability to oversee employee activities has become more difficult. Many compliance teams are adapting, by investing in newer cloud-based technology to monitor all communications and trades, which consolidates capabilities, reduces false positives and increases efficiency,” notes SteelEye CEO Matt Smith, speaking to RegTech Insight.
And it is not just SMCR that is creating pressure. With numerous additional regulations due to come into force this year, lockdown conditions are unlikely to exempt firms from expectations of compliance.
“Obligations under transparency regimes still remain, whether people are in an office or working remotely. Regulators expect firms to supervise their employees and if they are unable to do that fully, they need to demonstrate that they are doing as much as possible to meet their obligations. The FCA has been very clear that they still expect firms to meet all their regulatory obligations,” warns Smith.
“Even though SFTR has been delayed by 3 months, firms need to work towards compliance, as there will be a point when the regulator increases pressure and starts sanctioning firms for non-compliance. The industry has had to manage a major upheaval in how people work, combined with significant market volatility and rising trade volumes. This has resulted in a spike in alerts that require investigation by compliance officers, at a time when investigations have become more difficult to manage.”
According to the SteelEye survey, monitoring communications is the most significant challenge that compliance teams are facing in lockdown, and this has been a primary driver of the budget increase. Mobile communication and voice surveillance combined are the biggest concerns – understandable given the new working from home conditions, with employees potentially using personal devices that are not always connected to firmwide monitoring tools.
“Monitoring communications by staff working in multiple locations requires changes in compliance processes, which may prove challenging if access to on-premise technology is needed,” says Smith.
Key to monitoring communications, is the ability to overlay multiple forms of communication together for better analysis, and 50% of respondents highlighted this as an area where they are struggling. Another key concern (46%) is reactive rather than proactive alerts, which reduce the effectiveness and timeliness of compliance teams being able to review and respond to potential breeches. Consolidation and normalisation of data is third focus, with 48% of survey respondents highlighting it as a top surveillance priority.
Resolving these challenges means that a majority (59%) of respondents see automation as their top priority from a surveillance perspective. Creating customised, automated searches with smart algorithms generates specific, timely alerts that help to identify and resolve risks quickly. Apply machine learning or artificial intelligence to this, and the surveillance system should be able to improve the accuracy of alerts over time – an appealingly efficient way for managers to ensure compliance and monitor trading operations across a dispersed workforce.
“If we consider things like market abuse monitoring, we have already seen an increase in attempts of market manipulation. It is more crucial than ever that firms carry out effective trade and communications monitoring to detect and prevent any signs of financial crime or market abuse,” urges Smith.
With the majority of employees working remotely, firms should consider investing in a simpler and combined solution which brings together and analyses all alerts across all communications platforms, instead of using different technology for voice, Bloomberg, email, and so on. Newer technology can remove the need for multiple systems, providing a competitive advantage in this strange new world.
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