This session at the premium surveillance event for finance featured expert practitioner comment from: Ian Blair, MD Group Head of Surveillance, HSBC; Paul Clulow-Phillips, MD Global Head of Market Abuse Surveillance, BNP Paribas.  The session was moderated by Emily Wright.

The start involved an audience survey question – how do you expect the regulatory enforcement of the comms surveillance requirement to trend in the next 12 months? Respondents felt that this would:

• Increase significantly – 30%
• Increase moderately – 65%
• Remain stable – 5%
• Decrease – 0%

The direction right now in this sphere is very dependent on technology. New tech, especially generative AI, has totally changed the game. This has created an increased regulatory expectation of what can be covered, and what should be covered and less tolerance for any gaps. The key here is to manage timelines in reaching these new targets. The scrutiny is not just intensifying across surveillance functions, but goes deeper across all recordkeeping.

Focus has shifted from false positive reduction, to what happens to the increase in detection of positives that require escalation. The real issue right now is that despite doing a very thorough job of monitoring, this counts for little if many are still conducting business or communicating off-channel. 

It looks like the traditional approach to market abuse risk assessment needs adaptation to account for new and emerging risk, and off-channel communication is one of these. There is also more dependency on mitigating controls and the effectiveness of existing controls. Ultimately the theme is the creation of ever more complex and intensive risk assessments that are conducted more often. This seems to be the demand from the prudential regulators and it simply is not sustainable. The industry needs to group together to change the thinking on this within the regulators, devising more realistic practice.

The most recent data completeness regulatory enforcement (JP Morgan from OCC) highlighted the risk around data governance, data feeds and venues in general. This is a very complex area and it is essential that it is not viewed with a narrow siloed-vision. The governance approach must be built in intelligently so that the big picture is not ignored.

Evolving technology is already having a big impact on the way that comms surveillance is conducted. This is a transformation from the approach adopted to market abuse risk assessment post-Libor, demanding a broader view beyond market conduct to encompass more risks such as fraud and data. Comms are a lead indicator for conduct and culture and reflect the underlying activity of an institution.

There is now an obvious need for interoperability between control functions so that data can be analyzed more holistically. The front office is pushing for this and data providers are making more data accessible, and this is welcome as such access is vital for the risk and control functions.

This summary is not a full transcription of the session, but contains the sense of it as interpreted and reported by the GRIP subject matter expert who attended who is an ex-compliance officer and regulator.