Financial institutions improving detection rates in trade surveillance with electronic communications

As regulators continue to tighten the belt around compliance, financial institutions are under ever increasing pressure to improve their trade surveillance programs, according to John Dalton, SVP, global head of financial services product & solutions at KX

June 30, 2021 | KX

Whether it’s LIBOR ending or tax changes due to Brexit, these changes are always followed with a reaction against firms or individuals who take part in market abuse. Whilst it’s not new that financial institutions are required to identify intent to commit fraud, it’s becoming more challenging as new ways of buying and selling orders in the market are being demanded. Not only that, but, as the past 18 months have demonstrated, communications are no longer constrained to the trading floor – much rather, a trader can now be found working in various locations, where privacy protocols are making detection that much harder.

Regardless of these challenges, regulators still expect firms to be accountable for the realities of where market crimes happen. This can happen beyond the reach of imposed policies in the workplace in today’s digitally transforming world. Therefore, a proactive approach to trade surveillance technology, effective across all lines of business, is needed if firms are to win the fight against market abuse.

Identifying the intent to commit market abuse lies deep within the firm’s trade and electronic communications (E-Comms) data. Trade data can explain what crimes are being committed, while communication data can explain the why. Both are needed to detect and monitor illicit behaviour to ensure the right institutional intervention actions occur.

Surveillance in trade and E-Comms share the same goals: to mitigate risk, prevent regulator sanctions leading to significant crimes, and protect the firm’s reputational damage and shareholder loss. An E-Comms surveillance solution is only as good as the integration between trade behaviour and trade surveillance data that provides the institution continuous risk intelligence.

Capabilities to consider for a well-rounded E-Comms surveillance solution are dependent on its integration with trade and E-Comms data, continuous risk intelligence, and ensuring that it is future proof for evolving regulations and growing E-comms channels.

Integration with data

Having a consolidated platform that combines data ingestion and analytics delivered in a visualisation tool for both trade and cross-channel E-Comms data is powerful and super-efficient. Particularly when firms are asked to comply with regulators’ requests to deliver timelines of trades and communication, or even a look back audit of investigation activities.

With an integrated platform, this can be done with minimal manual configuration and high-powered search. Part of this integration, specifically for E-Comms data, should capture all channels of trade communications, whether on instant messenger (Slack, Teams, Skype) or emails, with the flexibility to add on new channels.

For compliance teams, analysing E-Comms alerts against trade alerts allows for proactive investigations and instant root-cause analysis. A pattern of poor behaviour and trade surveillance data can sometimes uncover hidden conduct risks, insider trading, and collusion. If compliance teams can identify these patterns early on, firms may be able to prevent regulatory actions and negative headlines.

Continuous risk intelligence

A streaming analytics platform with advanced time-series analysis allows for continuous intelligence backed with an integrated library of case management tools. This allows for efficient investigations to help mitigate risk.

Manual processes are no longer effective enough at detecting and preventing multiple types of market abuse against the wide range of electronic methods. The complexities of cross-channel monitoring in E-Comms are too laborious and inefficient. So, having a continuous intelligence approach with automation will increase efficiencies and provide accurate detection and deliver lower false positives.

Future proofing

With E-Comms surveillance, regulators expect compliance teams to capture and monitor 100 precent of trader communication channels, regardless of whether there is a firm policy or not. A comprehensive monitoring tool is therefore needed to respond to the multitude of electronic channels. However, it must be agile in order to prepare for future channels that require monitoring and the ability to manage evolving regulations, without delay.

The challenges to comply with regulation standards seem never-ending. Although there are surveillance solutions that have the global experience and reputation to support financial institutions, E-Comms surveillance is typically the starting point that leads to identifying market crimes that are captured in trade surveillance.

Working with a partner to facilitate an integrated approach between trade and E-Comms surveillance provides institutions with continuous risk intelligence for better detection and compliance.


KX recently enhanced its award-winning KX Surveillance solution to become a truly integrated surveillance solution that combines trade and E-Comms surveillance for better detection all in a single environment. Discover more here.

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