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, a new study by Acuiti has found.
Acuiti’s latest report – Getting to the risk quicker: How trade surveillance leaders are dealing with an increasingly complex environment” – investigates 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.
The independent report, commissioned by Eventus, collated the views of 71 senior trade surveillance, risk, compliance, technology and trading executives at banks, brokerages and proprietary trading firms. Eventus, a leading global provider of multi-asset class trade surveillance, market risk and transaction monitoring solutions, commissioned Acuiti to conduct this research project to analyse the key challenges that face banks, brokers and proprietary trading firms when structuring effective trade surveillance operations.
Among the key findings:
- 94% of respondents said that the complexity of trade surveillance has increased over the past three years, with 64% saying it has increased significantly
- Increased regulatory requirements and market volatility are the major drivers of heightened complexity in trade surveillance in the last three years
- A majority of sell-side respondents said that their analysts are spending more than 30 hours a week manually closing and investigating alerts
- High manual input is being exacerbated by a shortage of skilled compliance staff
- Firms 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
- Buy-and-build methodologies couple the advantages of both third-party and in-house solutions
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. 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, 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.”
“The pressure on the sell-side to maintain high quality trade surveillance systems is immense and unlikely to abate any time soon,” said Ross Lancaster, Head of Research at Acuiti. “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.”
Acuiti is a management intelligence platform designed to provide Senior Industry Professionals in the Derivatives Industry with high-value insight into industry-wide performance and business operations. Acuiti provides a platform through which our exclusive network of Senior Industry Executives can share and source information on day-to-day operational challenges, providing them and their management teams with increased transparency and in-depth analysis to make more informed decisions and benchmark company performance. Financial Institutions benefiting from our services include Banks, Non-bank FCMs, Brokers, Proprietary Trading Firms, Hedge Funds and Asset Managers.
Eventus is a leading global provider of multi-asset class trade surveillance and market risk solutions. Its powerful, award-winning Validus platform is easy to deploy, customise and operate across equities, options, futures, foreign exchange (FX), fixed income and digital asset markets. Validus is proven in the most complex, high-volume and real-time environments of tier-1 banks, broker-dealers, futures commission merchants (FCMs), proprietary trading groups, market centers, buy-side institutions, energy and commodity trading firms, and regulators. The company’s rapidly growing client base relies on Validus and Eventus’ responsive support and product development teams to overcome its most pressing regulatory challenges. For more, visit www.eventus.com.