2025 - The Future of Market Abuse Surveillance - Delivering on conduct surveillance

11 December 2020

by Graham Ure Partner, PwC UK

Email +44 (0)7889 644672

by Alex West Director, PwC UK

Email +44 (0)7841 567371

The key driver for implementing surveillance technologies has been the obligation to monitor for indicators of attempted or actual market abuse. Across the industry, surveillance coverage is measured against inventories of market abuse risks and models are aligned to market abuse scenarios. In our Future of Market Abuse Surveillance publication, we present one possible direction that reflects a trend towards a broader remit of surveillance, beyond market abuse, and integration of conduct-focused monitoring.

Organisations that see the benefits of more behavioural monitoring are beginning to explore how to bring different conduct risk indicators together to create a richer view of behaviour and more trader-centric monitoring. The vision of surveillance in 2025 that we have outlined in our paper presents three key benefits of conduct-focused surveillance:

1. The ability to detect more subtle indicators of market abuse and other misconduct by looking for a ‘trail of breadcrumbs’ rather than relying on the detection of the ‘smoking gun’ – Current surveillance models seek to identify patterns of activity that match against pre-defined expectations of what constitutes market abuse. Trader-centric behavioural surveillance could allow for profiles of behaviour to be developed over time and more subtle behaviours to be flagged for investigation.

2. The ability to identify indicators of good conduct as well as undesirable behaviours – By building profiles of trader behaviour, indicators of individuals doing the right thing and adhering to good conduct principles could be identified. A positive feedback loop where good conduct is identified, called out and rewarded would further enhance a ‘conduct state of mind’ within trading teams.

3. Monitoring trader performance and client engagement to deliver commercial edges – Profiling traders’ behaviours, interactions and trading strategies could be used to identify performance outliers and contribute to more metric-driven reward. Patterns of behaviour could be analysed to support training and development programmes, as well as to contribute to better and more profitable decision making. Profiling client activity could also allow for predictions to be made about client needs allowing for proactive engagement.

While the fictional vision of surveillance we have set out in our paper is just one possible future, technology enhancement will enable surveillance to deliver more insight across different aspects of conduct and provide greater value to the business.

Download our ‘2025 - The Future of Market Abuse Surveillance’ publication for more in-depth analysis of this theme and others relating to the evolution of surveillance.

by Graham Ure Partner, PwC UK

Email +44 (0)7889 644672

by Alex West Director, PwC UK

Email +44 (0)7841 567371