Holistic Surveillance: The Holy Grail for Compliance Exists in a Data-Centric Approach
By Matt Smith, CEO, SteelEye
“The approach to what you do results in what you get.” – Freddie Gruber, Legendary Jazz Drummer
When it comes to universal principals about approaches to life or work, one usually does not think of Jazz legend Freddie Gruber and his philosophy for drumming. A common joke about drummers asks why they are always losing their watches? The answer: Everyone knows they have trouble keeping time. I am sure Freddie would smirk wryly at the bumbling stereotype, but he certainly realised that successful drumming, just like any other profession or discipline, depends not just on raw talent but also one’s technique or approach. The same can be said for compliance – success is closely linked to the technique and approach adopted.
Compliance technology has attracted significant investment and evolved rapidly over the past decade. But despite clear advancements in regulatory technology or “RegTech”, particularly in the field of market abuse detection and prevention, there is still an ongoing debate in the industry as to whether an all-in-one holistic surveillance solution is possible or merely a distant dream.
For the avoidance of doubt, the answer is yes, holistic surveillance is possible and a reality for many surveillance teams. However, one must sift through the noise of cosmetic partnerships and half measures to understand that a true holistic solution comes down to one’s approach to the problem – how to unify structured and unstructured data such as transactions, communications and other disparate data sources on a single platform. The approach needs to be data-centric rather than focused on surveillance processes and data elements in siloes.
Managing Data – Partnered Solutions Vs Holistic
Because of the ever-growing requirements of financial regulations, such as EMIR, MiFID II, MAR, Dodd-Frank and SM&CR, and the number of platforms and systems used by firms today, the amount of data being generated and collated is both immense and complex. Current estimates project that the global Big Data market will grow to $103 billion by 2027. And despite the benefits inherent in cloud technology and storage, many firms are wrestling with legacy technology and have serious challenges in managing and processing data to meet their regulatory requirements. Whether the data comes from communications, trading, market risk, front-office, back-office, market sources, or other sources, the primary hurdle is collating all of that information – both structured such as spreadsheets and databases, and unstructured such as images and communications – making sense of it.
Most vendors in the surveillance space have focused their efforts on individual solutions built for specific requirements. For instance, Vendor A may provide one solution for communications surveillance, while Vendor B will only focus on trade surveillance. There could then be Vendors C, D and E, all offering additional siloed platforms for functions such as conduct oversight or e-communications capture and monitoring. And that does not even cover any of the additional compliance requirements firms are subject to beyond surveillance, such as best execution, transaction reporting or record keeping.
However, as the world around us becomes more complex, and market abuse behaviours evolve, the latest guidance has shown that a consolidated or holistic approach to compliance oversight is superior. This is because elements like communications and global news can provide compliance teams with the necessary context needed to fully understand and investigate trading activity.
As a result, many vendor firms are now partnering with each other to offer an “integrated” approach, combining complementary services and functionality. While seemingly on the road to a holistic solution, this approach is more cosmetic than effective, and still leaves the client with two user interfaces to handle as well as two sets of data.
The problem with these approaches is obvious in that many government mandates require use of the same data, which is then being distributed to multiple siloed surveillance platforms that adversely impact the time to market for client firms to react quickly.
A Data-Centric Approach is the answer
A truly holistic surveillance solution removes the need for multiple platforms by using a data-centric approach to capture, map and index all of a firm’s trading and communications data alongside market data, global news and even social media sources. This enables firms to carry out their trade and order supervision and communications and conduct monitoring holistically. At a single order or trade level, all related voice calls, emails, or even whatsapp messages are captured and can be analysed. A holistic platform can even bring in global news which might have influenced a trade – thus giving “context”.
Welcome to the Future of RegTech
Once implemented, a truly holistic surveillance platform will give firms the capability to fully understand their trade and order data and how it is interlinked with communications, thus providing a detailed synopsis of internal behaviours and the ability to investigate and react to possible wrongdoing. Also, as an added benefit, holistic surveillance can now play a major role in creating and sending automated trade reconstruction reports to regulators in seconds rather than days.
Many firms recognise the benefits of holistic surveillance but think that this is still a pipe dream. They are wrong – it is being done right now.
The challenge is to recognise whether a vendor’s system is truly holistic. With that in mind, here are some guidelines to consider.
- The vendor should be first and foremost a data company at heart.
- Their system must be singular and provide clients with a comprehensive and flexible data platform that captures and normalises all data from multiple sources.
- Their system must solve for complex regulatory compliance challenges and leverage data in new ways, offering a comprehensive range of asset class agnostic RegTech services, including regulatory reporting, trade surveillance, communications surveillance, Best Execution and TCA, analytics and more.
Once implemented, firms will experience a truly holistic system that provides a future-proofed response to their regulatory needs, while fully realising the power of their information and deriving additional insight about their business and performance, thus enabling efficiency gains in other parts of their business.
About the Author
Matt Smith is the CEO of SteelEye and has spent two decades in technology management and is now focused on helping financial firms use their data to solve regulatory challenges and gain a competitive edge. Prior to SteelEye, Matt worked at Noble Group as their Chief Information Officer and at Bloomberg as a Senior Product Manager, overseeing regulatory technology and helping evolve the product strategies for a range of financial regulation, compliance trading and analytics solutions.