Trade Surveillance Requires Higher Automation: Survey
Posted by Colin Lambert. Last updated: November 30, 2022
A survey finds, perhaps unsurprisingly, that the increasing complexity of trade surveillance requirements, driven by regulatory demands and exacerbated by volatility, is putting pressure on manual processes and driving investment in automation.
The study, by Acuiti’s and commissioned by trade surveillance solution provider Eventus, investigates the challenges facing trade surveillance teams as regulations governing trading have grown in scope, detail and enforcement. It also looks at the impact of increasingly sophisticated and complex trading products and techniques.
The report collated the views of 71 senior trade surveillance, risk, compliance, technology and trading executives at banks, brokerages and proprietary trading firms and found that 94% of respondents say the complexity of trade surveillance has increased over the past three years, with 64% saying it has increased significantly.
As noted, increased regulatory requirements and market volatility are the major drivers of heightened complexity in trade surveillance in the last three years and a majority of sell-side respondents say that their analysts are spending more than 30 hours a week manually closing and investigating alerts.
This high level of manual processes is being exacerbated by a shortage of skilled compliance staff, the firm says, adding that businesses are increasingly looking to technology for efficiency, with a clear desire for more automated workflows (64% of banks referring to machine learning as either very important or critical). Over 60% of respondents had either recently invested or were considering investing in trade surveillance within the next 12-18 months.
The report found that firms traditionally faced a straight choice between developing their trade surveillance systems in house or outsourcing to a third party. “Both have their drawbacks and selling points, but a new generation of vendors brings together the best of both worlds through buy and build solutions,” Acuiti says. “This could change the equation for many firms that want to both respect guidance from regulators, which according to respondents prefer third-party surveillance solutions, and maintain the ability to customise systems to their best advantage.”
Joseph Schifano, global head of regulatory affairs for Eventus, says, “It’s important to help compliance teams respond quickly and with as much detail to potential issues that arise with their surveillance alerts. Automation techniques enable analysts to work with the front office more efficiently, getting to the root cause of any potential issues. Analysts need to customise their technology and mitigate risk based on particular businesses, regulatory jurisdictions and trading activity. Today’s surveillance system must enable its users to be nimble and responsive to a rapidly changing global environment, while being explainable to the front office and regulators alike.”
Ross Lancaster, Head of Research at Acuiti, adds, “The pressure on the sell-side to maintain high quality trade surveillance systems is immense and unlikely to abate any time soon. Regulation and the volatility we have seen this year are creating sustained stresses on compliance desks, and this is increasing the case for strategic investment.”