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Closing the Gap of Market Abuse Surveillance

Market Abuse is nothing new, but the updated Market Abuse Regulations (MAR) in 2016 significantly raised the bar in terms of the requirements needed to address it and the punishments for compliance failure. Having conducted a survey on MAR in 2016, PwC UK has recently released its new Market Abuse Surveillance Survey for 2019 and it makes for fascinating reading.

Slow progress

Undoubtedly there have been improvements since MAR was introduced (the 15 banks in the survey show they have spent $737m on Market Abuse Surveillance solutions over the last two years), but overall there seems to have been a slow march towards progress, especially considering the penalties in place.

There are several possible reasons for this. There may be an overall lack of technology available (or lack of maturity in these solutions), or it could be that financial firms find it difficult to adopt the right technologies for their business needs. Certainly the amount of choice on the market can be daunting for non-technically-minded business leaders to grasp.

Equally, I feel there may still be some parts of the industry that look upon the problem in an archaic way, believing that it is easier to set aside large amounts of money to cover potential fines than it is to invest in solid technology solutions that all-but eliminate risk. It could be that a perceived lack of enforcement or lack of clarity by the regulators has also contributed to the lack of progress.

It’s likely that all these issues play some part in this apparent slow progress. The bottom line is that adaptation to the post-MAR landscape is simply too slow. We will of course only really get a true picture of this once there have been newsworthy fines imposed by the regulator.

Investment in solutions

The survey results underline that cost has not proven to be a major barrier to compliance. With the considerable potential costs involved in terms of fines and reputational damage, investing in the right compliance solution clearly makes sense from a financial as well as a reputational angle.

Regulated financial companies definitely need more sophisticated surveillance solutions that can effectively monitor trades of more complex structured products. They also need deployable solutions that can integrate relevant external data into internal trades in a meaningful way.

Many firms do still have issues with significant costs arising from inefficiency of processes, lines of defence that do not communicate properly or a lack of tools and alignment across the control functions. Investing in the right solutions is perfect for streamlining business processes as well as detecting Market Abuse activity.

Many solutions fail to meet expectations

Perhaps one of the most disappointing aspects of the post-MAR era is that many third-party surveillance solutions still fail to meet the expectations of the firms that rely upon them.

With the complexity of EU financial regulations (and many others around the world), firms need the assistance of expert technology to achieve the results they want and need. However, the market lacks the compliance / business angle and addresses the challenges with complex “BI-like” tools or with too technical IT tools.  Finding a software that is sophisticated enough to provide integrated  surveillance for compliance users without a 2-5 years installation project, is often easier said than done. This is particularly the case when it comes to monitoring and analysing eComms and voice data.

Worryingly the majority of participants in the PwC survey reported that they were dissatisfied with their eComms and voice surveillance solutions. Only 45% of financial companies surveyed expressed that they were pleased with their eComms monitoring solutions, and a disappointing 40% were satisfied with their voice data monitoring solution.

Perhaps most damning of all, whilst some financial companies were happy with the software solutions that they had integrated for surveillance of either trade, eComms, or voice data, not a single survey participant was pleased with the technology it uses for all three channels.

Challenges to address

Whilst it is a concern that there is still this level of dissatisfaction in the market, it does foreshadow an evolution in monitoring technologies, which must rise to meet the growing demand for more sophisticated surveillance solutions.

Along with the need to placate MAR legislation, financial firms need to have powerful surveillance tools in place to ensure the agility of their business processes. The number one issue facing compliance teams is false positives, which are an enormous burden on the compliance teams and the wider business. The latest AI-powered systems are designed to break this cycle by automating these tasks and providing greater insight, whilst lowering resource needs and costs

Overall, the PwC survey underlines that meeting the criteria of Market Abuse Regulation (MAR) is still a big challenge, even three years after adoption. Providing the right surveillance over all products and platforms is still a major hurdle for many firms and many still view implementing surveillance systems as a major challenge.

RegTech providers and financial sector firms need to continue working in partnership to utilise the latest technology (including voice surveillance, Trader Profiling, Machine Learning/AI and Transcription technology) and choose a solution which covers all the relevant channels, to close the gap between expectation and reality. 

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