Market Surveillance Adapts to the Pandemic, Brexit, Cryptos

By Ross Dubin, SVP, Global Head of Sales, OneMarketData

Major disruptive events over the past several years – ranging from the pandemic to Brexit and the emergence of new asset classes like crypto – have reshaped how trading businesses approach market surveillance and forced many firms to alter their surveillance protocols. The sudden workforce shift from offices and trading floors to remote work during the early stages of the pandemic presented major challenges to virtually every market surveillance program. Likewise, the impacts of Brexit taxed the resources of many firms doing business in the UK and the EU, and the advent of new cryptocurrencies and related assets presented challenges for regulators and trading organizations alike. 

Failure is not an option when it comes to surveillance programs, as the financial and regulatory pressure on firms to prevent abuse, maintain compliance and mitigate reputational risk has never been greater. Fortunately, new technology and tools continue to emerge to help financial institutions create robust surveillance programs. And as technologies including machine learning (ML) and cloud technologies are more regularly deployed to help detect potential market abuses, a new generation of data-driven professionals is emerging with the skills needed to make the most of several new technologies. 

Making the switch from legacy to cloud

Pre-pandemic, much market surveillance work focused on direct, one-on-one calls and chats from trading floors and offices. With the sudden shift to remote work, the focus pivoted to include activity such as monitoring video and audio calls. Moreover, while mobile phones were traditionally prohibited from trading floors in the pre-pandemic world, they became a necessity in any remote environment. 

The fastest and most efficient way many firms found to adapt was to ditch their legacy systems and leverage cloud-based applications, which also offered additional benefits for cyber security and crypto-asset surveillance. But each organization must match its unique needs and goals to any new technology it acquires. They can’t just plug in an out-of-the-box solution and expect to run a robust surveillance program. 

For example: in the UK, the FCA’s primary emphasis is on rooting out insider dealing. In the U.S., regulators are hyper-focused on market and/or price manipulation. Any market surveillance program must be adjusted to account for this type of diverse regulatory focus. In addition, market manipulation has become very sophisticated and commonplace, as malicious players realize how easy it can be in the absence of a proper surveillance program. As firms add new asset classes like crypto to their portfolio, they must also give serious thought as to how to prevent potential manipulation of those additional assets. 

Analytics and e-comms under scrutiny

The pandemic also shown a spotlight on analytics and the e-communication space. The rapid advances in machine learning over the last several years has resulted in fewer false alerts in surveillance programs, and more useful data to scrutinize. Likewise, the switch to remote work led to greater use of e-comms across email, texts, chats and more. Monitoring people at home is a challenge – but new technology is arriving that can even monitor keystrokes and detect suspicious terms of phrase in e-comms. In some cases, firms are now mixing in data from their HR departments, which in the past were usually siloed. 

Obviously, businesses traditionally only hire staff they believe to be professional and inherently good people. But even good people can be tempted by the likes of bribery, corruption, bad debts and more. Surveillance programs that leverage new technologies like ML can now not only detect bad actors but determine what “triggers” the bad acting by searching and identifying certain hints and activities – such as how an employee behaves during a video conference – that may not be obvious to the human eye. 

Analytic, data-driven employees win the day

Because today’s market surveillance teams may rely on multiple technologies and/or platforms, recruiting has often focused on core computing skills. Going forward, the demand for more analytical and data-driven specialists will grow significantly to keep pace with the massive amounts of data generated from surveillance programs. In tandem, regional specialists will be highly desirable to ensure firms can focus on and manage country-specific regulatory requirements. The net-net? In the future, firms will focus on recruiting and training surveillance personnel to be not only data scientist, but digital detectives. 

It’s clear that financial institutions need surveillance teams that can mitigate regulatory and reputational risk and ensure compliance around the globe, 24/7. Unfortunately, many businesses still rely on legacy practices and tools that were not designed to keep pace with the new world of remote, dispersed and always-on trading. For many firms, what’s really needed is a complete change in mindset – and perhaps a change in leadership to ensure market surveillance programs are endowed with the proper structure, technology and personnel to stay ahead of future disruptions.