A report commissioned by Eventus has found that the increasing complexity of trade surveillance requirements is driving up investment in market innovation.
The study – Getting to the risk quicker: How trade surveillance leaders are dealing with increasingly complex environment – was conducted by Acuiti.
The report investigated the challenges facing trade surveillance teams as regulations governing trading have grown in scope, detail and enforcement, and as the sophistication and complexity of trading products and techniques has advanced.
Acuiti collated the views of 71 senior trade, surveillance, risk, compliance, technology and trading executives at banks, brokerages and proprietary trading firms.
Some of the key findings in the study including 94% of respondents stating that the complexity of trade surveillance has climbed over the past three years, with 64% claiming it had increased significantly.
Furthermore, increased regulatory requirements and market volatility are the main drivers of heightened complexity in trade surveillance in the last three years. A majority of sell-side respondents said their analysts are spending more than 30 hours a week manually closing and investigating alerts.
The study also found that high manual input is being exacerbated by a shortage of skilled compliance staff. In addition, firms are increasingly looking to technology for efficiency, with a clear desire for more automated workflows. 64% of banks referred 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 year to a year and a half.
The report found that firms traditionally faced a straight choice between developing their surveillance systems in house or outsourcing to a third party.
Eventus global head of regulatory affairs Joseph Schifano said, “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.”
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