Breaking Down Surveillance Data Silos to Achieve Risk-360
Compliance leaders are at the center of a transformational time in regulatory compliance and risk management. Once thought of as a cost center, more financial firms are recognizing that compliance can be an asset to the growth of their business. Compliance is no longer just a tick-the-box exercise done to satisfy the regulators -- it can also win and retain business.
However, challenges remain. Many compliance officers are struggling with how to support their firm’s growth while also facing the mandate to do more with less. The volume and complexity of data is increasing and, in some cases, constantly evolving (such as with communications data).
This was the topic of discussion during the recent AIMA Fund Manager Briefing Breaking the Surveillance Silos, hosted by ACA Group. ACA’s Pat Conroy and Marc Salter shared their expertise on the current compliance landscape, the challenges and concerns facing compliance leaders, and solutions for addressing these challenges.
The key takeaways from the session are below. Watch or listen to the panel session on demand for additional insights and action items you can apply to your own compliance program.
Regulatory expectations and pressures are deepening
Financial firms are increasingly on the receiving end of regulatory penalties. In the U.S., the recent “shadow trading” allegations brought by the SEC against a former employee of the biopharmaceutical company Medivation show that the regulator is looking deeper and beyond the traditional definition of insider trading.
In addition, surveillance technology is no longer a “nice to have” in the minds of the regulators. Firms are expected to have technology that augments their compliance program through systematic, robust, and repeatable processes that allow compliance leaders to be proactive about identifying and responding to issues. Regulators also expect compliance teams to understand – and be able to effectively describe – how their systems work, including how the algorithms are calibrated.
Data silos are preventing a 360-degree view of risk
Compliance continues to be one of the biggest consumers of data – investment compliance, M&A activities, forensic testing, marketing reviews, compliance program management, e-learning requirements, and others all need to be captured, aggregated, documented, and evidenced.
However, this challenge heightens when data is siloed across the organization. Some firms, particularly large firms, have dedicated teams responsible for different compliance functions, and those teams all use different systems. This means each team is only seeing one slice of the pie, furthering the risk that a true event will be missed.
Compliance is not an island
Adopting effective data management and data governance practices is a firm-wide effort. So is establishing the firm’s key risk indicators. Not only do these need to be exactly tailored to the firm’s unique risks, but internal teams need to be aligned on what they are, why they’re important, and how to identify them.
The more siloed risk and compliance data is, the more difficult it is to establish and identify key risks. Compliance and risk leaders need to drive their firm’s key risk indicators and work together alongside technology and data teams to ensure the data can be consumed and interpreted effectively.
False positives are the number one surveillance-related frustration for compliance leaders
83% of session attendees said false positives are the top surveillance challenge for their firm. With the sheer volume of data flowing in from all angles, compliance officers are often left to conduct extensive investigations just to validate a true event versus a false alert.
Rather than being able to quickly identify an actual event and act upon it immediately, compliance officers are spending precious time collecting and collating data from multiple sources and then analyzing the results. This time is costly to the business in more ways than one.
Surveillance technology has come a long way
Some firms have historically thought that surveillance technology was out of reach due to a lack of resources and bandwidth to implement the system and manage its output. However, this thinking has evolved largely because the technology itself has evolved.
Artificial intelligence (AI) technologies like machine learning, natural language processing (NLP), and robotic process automation (RPA) have matured to the point where they can generate alerts down to individual desks within an organization. A surveillance system that is calibrated with accurate precision means every output/event can be viewed as a valid result that warrants an investigation.
Still, the time and resources required to calibrate system algorithms to a firm’s unique risks – and evolve those algorithms as risks evolve -- can be daunting for most firms. This is an area where partnering with a third-party technology vendor can help lift the load.
Holistic surveillance is no longer just a buzz word
Compliance leaders are seeing the true value of surveillance technology that is not only implemented thoughtfully and strategically, but also calibrated with precision. These systems can bring together trade data and communications to provide a holistic view of risk and generate fewer, more meaningful alerts.
Once a buzz term that was often misused, holistic surveillance for financial firms has become the best way for compliance leaders to achieve a 360-degree view of risk across their organization. The efficiencies of a holistic approach save the firm time and money, turning compliance from a cost center into an essential revenue driver.
Is your surveillance program truly risk-based?
An effective surveillance program is risk-based and holistic in approach. Firms are advised to conduct a thorough review of their surveillance process from end to end to identify gaps and determine where improvements are necessary.
To help you get started, ACA’s surveillance professionals have developed a self-assessment checklist that includes expanded reviews of public and private events, eComms surveillance, and more. This list is not intended to be exhaustive; ACA’s team can help analyze the results and determine the best path forward if enhancements are needed.
How we help
ACA’s holistic surveillance solutions are designed to help your firm manage its firm-wide risk in a way that meets regulatory expectations and industry best practices. Our offerings combine consulting, managed services, and technology to provide a holistic solution for developing and executing a comprehensive and truly risk-based surveillance program.
For questions or to discuss how ACA can help your firm strengthen its surveillance program, increase efficiencies through technology, and ensure your regulatory obligations are met, reach out to your ACA consultant or contact us here.