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5 trends for 2020 that capital markets firms need to know

Ross Aubrey

In 2019 a host of regulatory changes were introduced to bring about greater transparency in capital markets. With increased pressure to optimize current operational processes, we share our top 5 trends for the industry in 2020.

2019 was a significant year for capital markets firms. The Financial Conduct Authority’s (FCA) Thematic Review provided a greater understanding of the money laundering risks within the securities sector and regulators worldwide are homing in on inadequate anti-money laundering (AML) programs within capital markets business. As the pressure from regulators continues to grow, we look at the top five trends that should be on the radar of every capital markets firm.


#1 Financial institutions will connect their trade surveillance and AML efforts.

There is significant overlap between market abuse definitions and certain financial crimes, as well as the expectation for firms to consider the civil offence of market abuse and financial crime through a single suspicious order or transaction.

This has led to an increasing number of financial institutions merging their trade surveillance and AML efforts. There is a growing desire to use tools and systems that allow integration and interoperability to monitor client behaviour and employee conduct holistically.


#2 Organizations will opt for customizable AML solutions to address their specific business risks.

The Wolfsberg Group explains that no two financial institutions are the same and each risk mitigation strategy must be tailored to meet an organization’s risk appetite. This means financial institutions must not rely on out-of-the-box AML models and, instead, opt for more tailored solutions that address their specific business risks, including product, client, geographic, intermediary, and other inherent risks. Firms need to choose fully transparent vendors to partner and collaborate with on this journey.


#3 A shift from a culture of compliance to a culture of risk management

A tick-box approach to compliance is no longer acceptable and regulators expect a change in culture. The Wolfsberg Group’s statement on effectiveness encourages financial institutions to focus on effective outcomes, rather than solely technical compliance. This shift will be the catalyst to truly make a difference in the fight against financial crime within capital markets.


#4 AML will continue to be a top priority for regulators around the globe

In recent years, banks have been hit with hefty fines for insufficient AML processes. In the year ahead, we expect AML to continue to be a top driver of fines. As some time has now passed since the FCA released its Thematic Review and its findings on money laundering risks in capital markets, there is an expectation for firms to have improved their AML controls. Those who have not may be subject to enforcement. A recent Dear CEO letter also suggests the FCA will be focused on the buy-side in 2020 to ensure the right systems and controls are in place.

In the U.S., the Financial Industry Regulatory Authority (FINRA) released its 2020 Risk Monitoring and Examination Priorities Letter urging banks to “strengthen their compliance, supervisory and risk management programs.” The Securities and Exchange Commission’s (SEC) Office of Compliance Inspections and Examinations (OCIE) also is focused on AML policies and procedures:

OCIE will continue to prioritize examining broker-dealers and investment companies for compliance with their AML obligations in order to assess whether firms have established appropriate customer identification programs and whether they are satisfying their SAR filing obligations…”


#5 Firms will move away from ineffective transaction monitoring systems

More regulatory focus on capital markets and encouragement for innovation increases the urgency for financial institutions to act now. Firms should pursue new approaches to AML monitoring that deliver greater efficiency and effectiveness, compared to the traditional rules-based approach, which has historically resulted in significantly high levels of false positive alerts.

Firms should seize opportunities to use technology that transforms their operating models, such as more efficient and effective AML tools that can deliver fewer but more meaningful alerts. This will provide banks with more resources for highly skilled investigators to focus on evaluation and decision-making. Organizations must also identify additional external data to enhance monitoring output, which will eliminate some of the manual burdens on current investigative processes by leveraging a more automated and efficient approach. The FCA also plans to be smarter in the way it uses data and advanced analytics to transform the way it regulates and reduces the burden on organizations.


Context and collaboration are the future

Capital markets firms should opt for a contextual approach to monitoring to enhance AML systems and risk management and ensure relevant reporting obligations are met. Creating context means organizations can see the bigger picture and, as a result, have a greater understanding of risk to make better decisions faster.

And it’s not just within an organization that firms should be collaborating. In 2020, we hope to see a more collaborative approach across institutions to tackle financial crime at an industry level.


To learn more about how you can protect your firm against money laundering in capital markets, book a demo to see Quantexa’s contextual monitoring in action.

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