Insider trading, electronic communications (eComms), cybersecurity—all areas of elevated risk caused by how we conduct business—have forced compliance officers to adjust not only their firm’s policies and procedures, but also the scope of their oversight.
These challenges have more compliance leaders than ever turning to technology for help. According to Thomson Reuters’ Fintech, RegTech and the Role of Compliance Report 2022, 49% of survey respondents are considering the use of regulatory technology (RegTech) solutions to manage compliance, a 34% increase since their 2021 report. Notably, this is the highest percentage since 2016, when the Thomson Reuters survey first asked about RegTech solutions.
With 2022 well underway, and as technology’s role in compliance management continues to grow, what do compliance leaders need to know? We’ve compiled the top technology-related trends, insights, and resources to help firms maintain an efficient and effective compliance program this year.
2022 RegTech Trends
Insider trading and market abuse remain a top focus area for regulators
The complexity of trading risk is constantly evolving as remote working environments become the norm. With employees no longer working under one roof, it’s more challenging to monitor their behaviors and conversations. Add to this an increased reliance on eComms and the ability to potentially evade traditional surveillance mechanisms, and you have a scenario in which abuse can proliferate.
Regulators have taken notice and are taking action. The SEC’s “shadow trading” case shows that they are looking deeper and beyond the traditional definition of insider trading. In 2022, firms will need to monitor trading activity and eComms data more closely than ever.
The Financial Conduct Authority (FCA) has repeatedly stated that complete and accurate transaction reporting is critical under the UK’s Markets in Financial Instruments Regime (MiFIR). This reporting provides data the regulator uses as its principal source for detecting suspicious behavior. Research by ACA Group has identified that 97% of reports under UK MiFIR and the European Markets Infrastructure Regulation (EMIR) contain inaccuracies. But worryingly, 87% of firms are confident in the quality of reports submitted. It is clear that firms need to take a closer look at the transaction reports submitted, as errors could not only lead to undetected market abuse or systemic risk, but also pose significant financial, reputational, and compliance risk for firms reporting inaccurately.
Consolidation and integration of surveillance technology
Many firms have already adopted a holistic approach to surveillance that looks for misconduct across both trading activity and eComms data. But this approach has been missing a critical piece: integration.
Trade surveillance and eComms surveillance systems are still separate, meaning they don’t “talk” to one another. For surveillance teams, this has required manual analysis and investigation, leading to false positives and less precise risk capture.
Today, artificial intelligence (AI) technologies like machine learning, natural language processing (NLP), and robotic process automation (RPA) are being integrated into compliance technology at an increasing rate, enabling better data sharing and communication among different systems. Integrating trading activity and eComms data can help firms identify patterns and relationships between trading activity and eComms data that could point to misconduct.
Compliance with the SEC’s new Marketing Rule looms
Firms are reviewing the requirements of the SEC’s new Marketing Rule with less than a year until the compliance date (November 4, 2022). The sheer volume of marketing and advertising materials a firm needs to review for compliance can place a huge strain on internal resources, and the new Marketing Rule has only increased this load.
For additional resources for complying with the new Marketing Rule, check out our Marketing Rule Insights library for in-depth articles, FAQs, and on-demand webcasts to help you prepare.
RegTech Resources
ACA compiled a collection of resources to help your firm strengthen its compliance program, increase efficiencies through technology, and ensure your regulatory obligations are met in 2022:
- Checklist: Review and Enhance Your Holistic Surveillance Program
- Best Practices for Managing the Latest Trends and Challenges Related to Market Abuse Surveillance
- Holistic Surveillance – To Trading Activity and Beyond
- FCA Market Watch 68: Mind the Surveillance and Compliance Gaps!
- Breaking Down Surveillance Data Silos to Achieve Risk-360
Coming soon to ComplianceAlpha® – ACA’s Integrated RegTech Platform
In 2022, we continue to make strides towards our vision of delivering a fully integrated, holistic regulatory risk and compliance management platform that provides a single view into all activities that could put firms at risk.
Here are some new things we’re excited for in 2022:
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Integrated eComms + trade surveillance solution — In 2021, we acquired Catelas, a sophisticated machine learning-based eComms surveillance and investigations platform. We have integrated Catelas into ComplianceAlpha to provide our clients with one central platform for oversight of control room activities, trade and eComms surveillance, wall crossing, bribery, and other material risks.
- A Control Room solution for tracking the flow of deal-related MNPI
- A unique Best Execution solution which includes both quantitative and qualitative components
- ComplianceAlpha’s first modules dedicated to the Sell Side, including tools for managing rep licenses and registrations, trade supervision, and surveillance capabilities
- Expanded capabilities of the ComplianceAlpha mobile app.
How we help
Automate and streamline compliance and risk management tasks with ACA’s Regulatory Technology solutions.
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ACA’s ComplianceAlpha software platform helps you automate manual tasks, identify risk through enhanced surveillance capabilities, derive deeper insights through connected data, simplify the submission of requests and disclosures for employees, and free up valuable time for more strategic, higher-value tasks. Our award-winning regulatory technology platform transforms risk and compliance management for over 1,000 leading financial services firms worldwide. By bringing together risk and compliance activities, surveillance, testing, and analytics in one platform, ComplianceAlpha provides a unified view of risks and behavior across their firm.
- Our Regulatory Reporting Monitoring & Assurance (ARRMA) services help you quickly and cost-effectively spot EMIR and MiFIR transaction reporting problems relating to accuracy, completeness, and timeliness before they are identified by the regulator.
- ACA’s surveillance solutions are designed to help you manage 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 more information
For more information or questions, please reach out to your ACA consultant or contact us here.