All eyes on financial markets: improving culture and conduct

By Rafael Bloom | 3 December 2014

As the 2016 MiFID II deadline looms, financial market participants find themselves with significant compliance expectations thrust upon them. European organisations need to manage the impact of this and the wealth of other upcoming regulations. Can organisations turn this unrelenting focus on compliance to their advantage by using these reforms to change culture and conduct in financial services?

The compliance conundrum

The regulatory bodies of the world’s financial markets are responding to an unprecedented and wide-ranging crisis of confidence. MiFID II has been designed to boost transparency, and by extension, rebuild some of the lost trust.

Hot on the heels of Dodd-Frank and due to come into effect in 2016, MiFID II, broadly speaking, is intended to achieve a change in the general conduct and working culture of financial markets participants. This is no small task, and can be compared to initiatives where those in charge of major cities have tried to clean up areas affected by a culture of petty crime and vandalism. The ‘zero-tolerance’ approach to the more minor offences in affected areas has been shown to lead to a drastic reduction in more serious criminality.

Beyond compliance

Few industries have faced sterner criticism over culture and conduct than financial services. And yet, it is not the intention to draw an unkind picture of the participants of regulated markets – the vast majority of whom of course conduct themselves impeccably. It is more that the observed behavioural shift in the ‘zero-tolerance’ model can serve as the archetype for the necessary shift in conduct in regulated financial markets.

Being able to capture voice conversations and replay them on demand, as required under MiFID II, is an appropriate starting point. However, it is the ability to perform surveillance at a much higher level of granularity that helps spot minor breaches of protocol. As well as spotting rogue behaviour, surveillance and data analysis can raise the level of communication internally and externally, e.g. highlighting profane language. People will quickly stop if they know they are being recorded and will be called out on it.

Tools of the trade

The requirement to archive email, instant messaging, mobile phone conversations and SMS traffic under MiFID II presents a big challenge which demands an integrated approach. On average, email traffic consists of a Gigabyte of data, per person, per year. This sets out inherent management, storage and analytical tooling challenges which cannot be addressed in isolation. For the IT or voice manager, the solution will be couched in the tools designed to give assurances on the integrity of the voice recording estate itself. For the compliance department, those assurances alone will give some peace of mind, but will no longer be sufficient on their own.

Appropriate tools, integrated with the compliance officer’s specific workflows, are coming to the desktop. For communication surveillance, a combination of analytics tools can scan multiple channels proactively, but not just for the usual suspect words and phrases. It can also detect which topics are being discussed and whether the patterns associated with such conversations are normal or cause for further investigation.

This proactive approach should be combined with case management workflows to help streamline compliance. Ideally all communications channels will be captured, surveyed and securely stored for replay on demand with one compliance tool.

Act now

Technology is not a silver bullet here. But it will play a vital role in going beyond compliance, changing our collective attitude and the capacity to foster a more positive environment in financial services.

In order to guarantee that they have the knowledge, skills and technology capabilities in place for the 2016 deadline, it is imperative that European organisations begin to consider the potential regulatory impacts now. Taking action sooner rather than later will offer a commercial advantage, as well as the chance to incorporate compliance into a wider ethos of improved conduct and culture.


By Rafael Bloom, Product Manager, Etrali Trading Solutions  

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development