Recently, PriceWaterhouseCoopers (PwC) UK published the findings from their 2016 market abuse surveillance survey. The survey was given to twenty of the largest global banks and the results aren’t surprising. Over the past five years, financial services firms have been investigated and fined with increased frequency across a wide range of alleged market abuses. And according to the Bank of England¹, interbank rate and market manipulation have cost firms over $19 billion in fines globally. It’s clear that market abuse surveillance isn’t working and something needs to be done.
We’ve summarized the results of PwC’s survey into 4 key takeaways from which any financial services firm, regardless of size, can benefit.
#1 – Surveillance is not currently one-size-fits-all
When asked how many technology vendor organizations each bank employs over the entirety of the surveillance effort, over 70% responded that 3 or more vendors are used. PwC attributes this to the fact that each vendor’s solution is somewhat different and that banks, in order to achieve greater comfort and coverage, deploy multiple solutions. That said, firms would prefer a convergence in the surveillance market, but note that most vendors are not currently addressing this need.
#2 – Integrated surveillance solutions are needed
It follows from the above point that most banks indicate that integrated surveillance across diverse datasets is the single most important goal that would enhance surveillance. In fact, more than 50% of survey respondents indicate their intention to develop more integrated capabilities from the data they collect and believe that achieving this will have the greatest impact on enhancing the capabilities of the surveillance function. And, as previously “siloed” data transitions to a colocated state with other data, it’s clear that the use of big data technology and advanced analytics are imperative to achieve success at scale.
#3 – Too many false positives are still a major challenge
Most firms continue to employ market abuse surveillance solutions with lexicon-based means of detecting risk and violations. Lexicons, while perhaps effective a decade ago when the volume, variety and velocity of information were much less, are simply failing into today’s environment. And firms are the first to attest to this fact – often painfully so. In particular, more than 65% of firms surveyed indicate that the number of false positives (information incorrectly flagged as high risk or in violation of regulations) is unacceptably high and that compliance teams are struggling to review every alert.
#4 – Firms want to fix market abuse surveillance and will increase spend as a result
Firms recognize the shortcomings of current market abuse surveillance solutions and they’ve unfortunately learned painful lessons in the form of regulatory examinations and fines. As such, PwC survey respondents have indicated a commitment to enhanced surveillance, with most firms expecting to substantially increase their spend on surveillance solutions over the next 12-18 months, the majority of which predicting between £5 – £10 million ($7 – $14 million USD) in increased spending.
In summary, these 4 key takeaways reaffirm the belief held by many compliance officers in the financial services industry: that existing surveillance processes and solutions are simply no longer effective. Narrowly-focused, point solutions are deployed for each use case leading to a very “siloed” view of potentially risky activity. And within those silos, compliance teams are struggling to review vast numbers of alerts that are often nothing more than false positives, while the true issues remain undiscovered. But thankfully, firms realize the shortcomings of their surveillance solutions, and intend to increase spend as a result. It’s one step in the right direction.
Charts courtesy of PwC