2025 - The Future of Market Abuse Surveillance - Setting up the governance and operating model for success
07 December 2020
The question of where surveillance should sit across the lines of defence has never been definitively resolved. An industry consensus view is proving elusive, and different organisations favour different balances of responsibility for surveillance between the first and second lines.
In our 2016 Market Abuse Surveillance Survey, participants were split down the middle in favouring first versus second line models. In our 2019 survey, there was a marked swing towards the second line, with participants citing independence as the key benefit. Even so, some participants continued to advocate for first line surveillance and closer alignment and coordination with supervisors.
In 2020, the debate continues to rage. Our Future of Market Abuse Surveillance publication presents one possible vision for surveillance governance and operating models that reflects the trend towards a broadening remit of surveillance and integration of conduct-focused monitoring. Across the industry, conduct monitoring activities are performed very differently, with supervision teams, Compliance, Surveillance and Control Room monitoring different aspects of conduct. Some organisations are exploring how to bring these together to create a richer view of behaviour and more trader-centric monitoring.
Where an integrated conduct surveillance team should sit across the lines of defence remains up for debate and different organisations will take different routes. However, we think four key emergent trends will shape the debate into the future:
- Surveillance moving away from being ‘alert factories’ with smaller teams of data analysts and trading experts investigating higher quality risk indicators produced by the next generation of behavioural surveillance.
- Surveillance becoming more agile and responsive to changing market conditions and the requirement for greater coordination between the business and monitoring functions to enable this.
- Surveillance transitioning from a purely market abuse focus towards broader conduct monitoring to provide supervisors with more timely insight into behaviour across all aspects of conduct.
- Behavioural surveillance delivering value-adding insight into trader performance and client engagement to help identify where to find commercial edges.
The vision of surveillance in 2025 outlined in our publication is just one potential future, and surveillance will likely evolve in unexpected ways. Even so, surveillance will increasingly be deployed across different aspects of conduct, which will prompt further debate about where it should sit across the lines of defence.
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.