RiskTech Forum

For A Competitive Advantage, Firms Require Integrated Compliance And Surveillance Systems

Posted: 27 February 2013  |  Author: Magnus Almqvist  |  Source: SunGard

In the wake of a long series of high-profile international failings in market conduct and outright fraud, the Hong Kong capital markets are today under increased scrutiny to ensure trading in the region remains fair, transparent and orderly. The key overarching objective in Hong Kong – and around the world – is to ensure investor trust remains high.

A few incidents that have touched the region recently are high-profile anti-money laundering failings at international levels, suspected collusion in the process of setting interbank interest rates, and identified failings of monitoring and reporting positions.

Whether the resulting regulatory action is a fine or a criminal prosecution, individuals, firms associated with those individuals, and the firms themselves that are found guilty are subject to not only financial damage but reputational damage as well. The press is increasingly monitoring and reporting any suspected and confirmed misconduct within the industry. Ultimately, they also provide fuel to the movement to clamp down and excessively regulate the whole industry.

Another trend is also emerging: customers are increasingly asking a firm about its compliance policy and processes before deciding to commit to long-term and/or large-scale investment services. After all, you don’t want to find that your investments are involved in scandalous insider trading or used by the firm to finance expensive fines.

FIND OUT: What is effective surveillance?

Clearly, there is now a business case for actors within capital markets to invest in efficient surveillance systems.

Compliance solutions must be able to analyze a firm’s trading activity and the effectiveness of its trading strategies, ensure that trading activity falls within regulatory frameworks, and comply with corporate ethics of the company. The system also needs to be integrated with other compliance tools – such as pre-trade risk, social media surveillance, staff dealing and customer due diligence – to give a complete picture of regulatory risk and the ability to demonstrate a comprehensive approach. Finally, firms need a strong compliance and regulatory function. This will also help them demonstrate their corporate responsibility to employees, regulators and the public.

Compliance systems must demonstrate enough flexibility, performance and capacity to cater for future regulatory changes and business requirements, including the anticipated growth in the amount of data that needs to be processed in real time.

For the visionary organization, a well-functioning and integrated compliance and surveillance solution is becoming an important opportunity to get ahead of the competition and – perhaps even more importantly in today’s climate – also a way to demonstrate a company’s full commitment to corporate responsibility and engagement in the evolving regulatory landscape.

After all, how can anyone properly participate in the regulatory legislative process if they don’t fully understand market activities and trends, including their own firm’s contributions? This is true for participants, market venues and regulatory authorities alike.