Big brother isn’t working – Findings from our Market Abuse Surveillance Survey

March 03, 2016

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Interbank rate and foreign exchange market manipulation have cost banks over $19bn in fines globally. The Financial Conduct Authority (FCA) alone issued in excess of £1.4bn in fines relating to these issues between 2013 and 2015. Surveillance has yet to deliver as a fully effective tool for preventing market abuse in financial markets.

 

Needle in a haystack?

Over 140,000 people work in banking in London alone. That equates to tens of billions of emails, messages and phone calls every year. In a fast moving environment, those communications often use highly colloquial language and rapidly evolving terminology. And to be truly effective, surveillance needs to be able to spot new or emerging forms of abuse - likely to involve only a few traders and a handful of transactions – in this ocean of data.

The question is whether banks can really use surveillance as an effective tool to prevent future instances of misconduct, market abuse and rogue trading, reading every message and checking every trade, or are the challenges too great?

 

Impact of regulation

One of the biggest challenges in financial markets is how to conduct effective surveillance to spot market abuse and rogue trading. Banks are still concerned about the regulatory direction of travel and the impacts that this may have on additional requirements for surveillance. Specific concerns they raise include the EU market abuse regulations and possible extensions of the scope of surveillance required across both asset classes and trading processes. As well as future uncertainty, it is clear today that technology is not yet working as well as banks need it to.

To gauge banks’ estimations of the challenge and to provide more transparency to the market, we recently ran a survey focused purely on surveillance. Our aim was to help understand:

(i)     How banks are responding to regulatory developments

(ii)     Whether any industry standards are emerging

(iii)   How surveillance capabilities compare across the sector

In all, twenty of the largest global banks participated in the survey, each with a significant presence in EMEA.

 

Automation isn’t delivering

The survey found widespread dissatisfaction with error rates and the high cost of reviewing inaccurate alerts from automated monitoring of both electronic messages and trade patterns. In particular, more than 65% of tier 1 firms believe that the number of false positives (electronic messages or events incorrectly flagged as high risk) currently generated by trade surveillance systems is unacceptably high.

So are banks truly on top of trader chatter? Is surveillance technology really delivering? Surveillance –primarily a first-line activity?

 

Find out more by downloading our 2016 Market Abuse Surveillance Survey here

 

What’s the answer? How can financial institutions combat rogue trading? Share your thoughts below or schedule a meeting to discuss your situation in confidence.

Graham Ure | Forensic Technology Partner
Profile | Email | +44 (0)20 7804 9428

 

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Rukshan Permal | Forensic Services Director
Profile | Email | +44 (0)20 7212 6398

 

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