Surveillance & Transaction Monitoring Trends to Watch in 2022

Quantexa was delighted to sponsor and actively participate in a number of panel discussions and roundtables with industry thought leaders at November’s XLod event. 

XLod Global – the only event to combine all three lines of defence – saw the world’s non-financial risk and control leaders network, learn, and collaborate while shedding unparalleled insight onto the obstacles the industry has faced over the course of the global pandemic. Here are the top three trends to watch out for in 2022’s surveillance and transaction monitoring landscape. 

Trend 1: Data Integration 

With holistic surveillance still considered the utopia, the topic of integration and how organizations can bring together data and metrics in a more meaningful way proved to be a key trend in the surveillance landscape.  

There is still uncertainty around the value of integrating trade surveillance with e-comms or voice, as these are difficult to match up to the trading behavior. As a result, taking a more contextual view of employee and client risk by leveraging external data and intelligence and techniques such as entity resolution and network analytics is considered a more valuable way of bringing together trade and transaction data. Consolidating alerts that have historically been reviewed in silos enables investigators to take a broader view, such as consideration of cross-product behaviors, to create a more fully informed decision on client risk.
 

Some financial institutions have attempted to use their trade surveillance systems to also satisfy anti money-laundering (AML) detection, but trade surveillance tools are not designed to consider client AML risk ratings, behavior patterns or other existing internal and external intelligence. Additionally, traditional trade surveillance typically lacks a cross product view making it difficult to monitor post trade activity or other related entities that might present risk, such as issuers, counterparties, beneficial owners, and indirect customers.  

A recent AFME report highlighted that 80% of firms surveyed had filed no SARs for their capital markets businesses within the last year, yet 67% of participants felt that there had been a significant amount of undetected funds being laundered through markets. As next generation approaches like contextual monitoring fast become the new norm in markets for finding previously unidentified risk, there is a strong case for these tools to be used for market abuse and market manipulation detection.   

Firms that are not looking at the cross-overs between AML and transaction surveillance may be missing a trick.

80% of trade markets leaders at an XLod roundtable agreed that there is significant value to be gained from integrating transaction monitoring and trade surveillance systems.  

However, over 50% said their organization had no plans for integration in 2022. While some firms are acting now, others have plans over a three-to-five-year period, which could leave them lagging behind their peers and under the spotlight of the regulators.  

Contextual surveillance is the strategic objective for FinCrime transaction monitoring, which needs better alert generation, more efficient disposition of alerts and visualization of contextual and relevant data.

With the boundary between trade surveillance teams and financial crime coming down, the convergence presents opportunities to take a more risk-based approach. Collaboration on risk assessments helps to determine the effectiveness of existing controls and uncover the gaps in coverage. This enables organizations to select the right tools and data (internal and external) to tailor their risk detection and meet the demands of their business model and client base.  

Regulators are monitoring across the risk framework, which necessitates a contextual approach and data-driven investigations […] ‘Out of the box’ technologies can’t resolve the variety of financial crimes risk indicators found across customers, issuers and trade data that spans product lines. 

Trend 2: Creating Data Utilities 

Uncertainties about data quality and completeness means that data is still holding many firms back. As many as 9 in 10 global organizations are struggling to leverage the power of their data. The time and cost required to normalize data has proven to be a blocker for some financial institutions, forcing many to remain on legacy technology that lacks the efficiency of newer, more innovative solutions. 
 

Don’t let perfection be the enemy of progress when it comes to data.   

Large scale data pools are seen as essential investments for risk management, with potential added benefits for business lines. In 2022, some financial institutions have plans to create data utilities to provide enterprise-wide use of data across a firm and across different lines of defence. This would not only deliver better insights from a risk perspective, but would also help to generate business insights and opportunities.  

Data used to drive business insights supports investment as a support for PnL vs. simply cost centre.

An approach like this could help to create a stronger business case for investment and buy-in from a wider set of stakeholders who recognize the value it can deliver.
 

New technology at an enterprise level can help drive more senior management attention seeking to get more ‘bang for their buck’.

Advanced, innovative technologies powered by AI can help to alleviate some of the current strains and pain points being experienced within the surveillance industry and has the potential to accelerate the onboarding of data for faster ROI, reducing the need for complex coding or specialist skills.

For 2022, operationally, many banks are in the process of creating central utility teams in order to separate out the core value work from the low value repetitive tasks. These teams, known by many as the Control Tower or Infusion Centers, are being resourced with experts who have strong product and markets knowledge. This is reinforcing that for the best chance of finding risk, it’s paramount to onboard expert users who can leverage best-in-class technology and analytics.
 

With the low-level alerts being monitored by lower cost headcount, these expert users are seeking tools that allow for more proactive and targeted reviews. This involves responding to indicators generated by these tools and signals based on external factors, making them more dynamically responsive to new or emerging risks. 

Find out more about our Syneo Investigations Solution

Trend 3: Remote Supervision 

For traders, the shift to home working continues to present challenges for supervision and surveillance teams. Replacing in-person supervision is difficult and has resulted in a fundamental reliance on technology, controls and metrics.  

In some financial firms, the highest risk population of employees are required back in the office full time (some never left in the first place), whilst other firms have made efforts to create a “virtual office” environment. Some have gone so far as to have cameras live-streaming traders throughout the working day. This new way of working has forced teams to assess how they onboard new channels that were once prohibited and blocked for business purposes, such as video conferencing platforms like Zoom and Teams. 
 

Monitoring over more transactional data will undoubtedly lead to a higher number of alerts, which is leading firms to consider how they can complement existing lexicon based surveillance solutions by applying meta data analysis to look at behavioral shifts. This targeted approach to monitor conduct risk can help identify anomalous behavior that the lexicons are failing to detect, and which have degraded over time as people learn what triggers set it off, and how to avoid detection.
 

In light of these shifts in behavior, there are fears around the erosion of culture, of maintaining strong top-down leadership and of effective onboarding in remote and hybrid work environments. Questions are being raised about how new joiners will learn expected behaviors without in-person mentorship. As a result, in 2022 technology and behavioral analytics might very well be the solution to setting the right guardrails to protect employees and prevent them from entering the grey zones.  

Transaction Monitoring & Surveillance in 2022 

It’s incredibly foolish of us all as an industry not to put the data sets together and integrate them into single platforms.

For 2022, the theme that seems to run through all these trends is the idea of “better together” – be it teams working more closely together to share intelligence and systems, or data being brought together in a meaningful way to improve the chances of finding risks. Contextual monitoring can support teams in their mission to join the dots and leverage the power of their data. 

Bill Gates famously said that “most people overestimate what they can do in one year and underestimate what they can do in ten years.” However, the takeaway from XLod was that 2022 is set to be a year of achievement. Giant steps will be taken to tackle some of the challenges that transaction monitoring and surveillance teams have been facing over the past five years. Watch this space.