Firms that don’t keep up with regulatory demands run the risk not only of sanctions but also of reputational damage. Robust and thorough eComms surveillance is no longer a box-ticking exercise but a must-have.
- The demand for electronic communications (eComms) surveillance has risen in recent years in response to regulatory requirements.
- The volume of communications and range of channels has made it increasingly difficult for firms to adequately monitor eComms.
- New technology is vastly improving the ability of financial services firms to detect and prevent market abuse through sophisticated multi-channel monitoring tools.
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The regulations surrounding eComms today are far more stringent than they were a decade ago.
The level of scrutiny has increased, and enforcement and fines have been stepped up across the world, with bigger penalties imposed each year on firms found to be in breach of regulations.
In September 2022, the U.S. Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) collectively fined 16 financial institutions over $1.8 billion for failing to adequately monitor and record communications over several communications channels, including text messages, WhatsApp and others.
Find out more about LSEG’s eComms monitoring tools, including the Refinitiv Compliance Archive
eComms regulations becoming more complex
The level of regulation in all jurisdictions is becoming more complex and the market more sophisticated.
To reduce a set of risks ranging from operational to compliance to reputational, firms need to invest in a comprehensive and reliable surveillance mechanism. Legacy technology is simply no longer up to the task.
The investment required is not only monetary but also cultural. Governance is key; in the event of an investigation, firms need to demonstrate not only that they hold a database but also that they have in place the tools to respond to concerns (both internal and regulatory) and a process to show that any failings can be rectified or prevented in future.
Methods of communication have mushroomed in recent years.
Fragmentation has been generated in terms of the number and nature of communication channels that are easily available to all, from email to social media, to voice apps and video chat.
There are no longer limits on the number of characters in a message or on the size of email attachments. During the global pandemic, many clients adopted non-traditional channels as their preferred way of doing business.
From a compliance point of view, all this equates to risk that needs to be managed. It is not only a case of ensuring that rules are complied with, but also that the communication tools available are not misused.
The new role of compliance
The role of compliance departments has changed enormously. Where they once consisted of small teams whose approach to surveillance of the three or four available communication channels was reactive, they are now required to be more visible and proactive. It’s their job to define the parameters of communication tools to be used within their organisation and to have the tools available not only to detect problems but also to report them.
The traditional system of keeping separate databases for each channel is no longer fit for purpose.
In the event of an investigation, where the ability to provide all required information quickly and efficiently is looked upon favourably by the regulators, pressing multiple buttons to generate reports in multiple formats is time-consuming and inefficient. Retrieving and reconstructing eComms related to a particular trade can take several days.
The ideal solution presents all information in a single database, allowing for all channels to be compared and making it easy to spot patterns.
The eComms surveillance revolution
Technology is playing a key role in the evolution of eComms surveillance tools.
Many compliance teams lack effective unified case management tools, relying on fragmented files with different formats and pointing at several databases. As a consequence, analysts can easily miss important pieces of information or fail to “connect the dots”.
Firms need to be seen by regulators, clients and the wider public to police their internal activities and it is clear that manual processes are no longer adequate for detecting the market manipulation which is happening via a range of electronic methods.
Further, eComms monitoring is often thought of as an issue for the dealing room but is a much wider requirement for firms, with functions such as legal and HR increasingly subject to scrutiny in times of dispute. Companies need an enterprise-wide system in place that can cross workflows.
Storing and processing large amounts of data has become easier, while at the same time AI and machine learning have enabled more intelligent and precise monitoring of communications across all channels and different languages.
It is now possible for eComms monitoring tools to compare and analyse patterns of speech and behaviour, and even to detect sentiment in discussions. There is no longer a need for the manual maintenance of a list of ’suspicious’ words. This is, in any case, an inaccurate system, since it focuses only on finding words, often generating false positives with little scope to learn from errors.
Machine learning techniques can be applied to parameter and alert setting, segmentation and risk scoring. The use of AI reduces false positives and makes case management and data analysis easier.
Native connectivity to different sources is important to demonstrate flow and lack of manipulation or intervention in today’s highly automated financial markets.
How LSEG can help
When adopting an eComms surveillance solution it is important to work with a trusted company that understands both technology and the structure of today’s financial markets.
LSEG, in partnership with Global Relay, provides highly secure eComms surveillance systems empowering firms to act with confidence when monitoring communications.
Our combination of world-class data and leading-edge technology built for today’s complex regulatory structure helps firms to maximise resources, manage risk, improve compliance and reduce costs.
We look to make implementation easy with a Zero IT Footprint approach, transforming siloed deployed databases to an open, fully hosted system.
Find out more about LSEG’s eComms monitoring tools, including the Refinitiv Compliance Archive
