At this year’s XLoD Global – the largest event of its kind ever – one of the most interesting...
Anyone who has been to any of our events over the past few years cannot fail to have noticed the widening gap between the surveillance (and broader compliance) efforts of the very largest firms and everyone else. There are obvious reasons for this: large firms usually have more resources; they likely operate in a broader range of asset classes and markets and so are subject to correspondingly more regulation; and, perhaps most relevant of all, they are the biggest targets in the regulators’ sights. Most have been in one form of remediation or other in at least one major jurisdiction for much of the last decade.
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This has, in a sense, taken the pressure off smaller institutions. The sheer complexity and expense of building surveillance systems for market abuse detection and prevention, issues around privacy and data protection, and regulatory focus on the largest players has allowed even large mid-sized banks to maintain the absolute minimum viable surveillance programme.
Not any more. Regulators at our recent XLOD event, whether from the UK, Europe, the US or Asia signalled dissatisfaction with this state of affairs. Smaller firms (and some larger ones too) are being fined for having surveillance/supervisory systems that are not “reasonably designed” with respect to detecting potentially manipulative trading. They are being fined for surveillance “blind spots” and for setting surveillance calibrations in such a way as to lower alert volumes by excluding trades that could be indications of market abuse. And they are being much more closely examined around their documentation, the timeliness of risk assessments and reviews, and around whether they truly reflect the size and complexity of firms’ businesses. Firms that argue their minimalist systems are “proportionate” will have to prove it.
As one senior regulator said, “The gap between the average performers and the lowest is too wide. [Firms need] advanced analytics, regular reviews of their risk environments and, proportionate investments, and I stress the word proportionate in that context. Firms exhibiting good practice have been able to build systems that are adaptable and very resilient.”
The unspoken implication that follows is that poor performers will increasingly be judged against the results of best practice processes and they will be penalised for what till now may well have been seen as BAU.
