PwC Market Abuse Surveillance Survey 2019

Financial markets continue to evolve their surveillance capabilities to adhere to regulatory expectations

Market events over the past few years concluded that organisations were falling short in protecting orderly markets and detecting market abuse. This perpetuated wholesale changes to regulation, focused on having a greater appreciation for market abuse risk and implementing automated surveillance to detect potential instances of market abuse, if they were to crystallise.

We carried out our last Market Abuse Surveillance Survey at the beginning of 2016, shortly before the EU Market Abuse Regulation (MAR) went live. At that time, organisations were working to understand the expanded regulation's impact on surveillance given the requirement to implement adequate systems and controls to prevent and detect market abuse.

Three years on, our survey shows that the maturity of banks’ surveillance functions has increased considerably and a lot of lessons have been learnt.

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Ruk Permal looks at the key themes emerging from this year’s study on Market Abuse Surveillance.

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Graham Ure discusses whether the relationships between technology vendors and banks has helped to deliver effective surveillance.

Key findings

How much progress has surveillance made since 2016?

  • Surveillance has undergone an evolution, but it remains dynamic and as yet incomplete.
  • The surveillance industry is maturing, driven by significant levels of investment.
  • In the last two years the surveyed banks have spent $737m developing and enhancing their surveillance capability.

To what extent have surveillance operating models evolved?

  • In 2016, banks were taking steps to transfer more responsibility into the first line, combining technology and knowledge of the trading environment to identify market abusive events more readily.
  • Three years on, 18 out of the 21 banks surveyed now have surveillance situated fully or predominantly in the second line.
Figure 2: Where does responsibility for surveillance reside in 2019?
Figure 4: Views on the feasibility of achieving intergrated surveillance

From holistic to integrated surveillance, but is it achievable?

  • In 2016, 12 out of the 20 banks interviewed said ‘holistic surveillance’ was one of their top priorities.
  • Performing effective surveillance over one channel e.g. trade, eComms or voice has proved more difficult than expected.
  • Respondents noted disparate data, limitations to existing technology, data latency and accessibility as barriers to conducting holistic surveillance.
  • Holistic surveillance has been reborn as ‘integrated surveillance’ - until such time as further technology advances are made, integrated surveillance needs to rely more on the virtues of humans, rather than machines.

Choice of surveillance vendors - convergence or divergence

  • 17 respondents have implemented surveillance software solutions since 2016, with further planned investments over next 12-36 months.
  • The banks have frequently expressed a desire for a clear, de-risked set of vendor choices to emerge.
  • The investment is a mix of system replacement, particularly around eComms, and acquisition of additive and enhanced capability.
  • Respondents have seen improvements to their vendor solutions since 2016 around coverage, functionality and to alert logic - but there continue to be concerns over the high volume of false positives.
Figure 6: Surveillance Improvement since 2016 and satisfaction with current solutions

*About the survey

We interviewed 21 banks; 14 of which also participated in the 2016 survey, allowing us to draw out a view of how the organisations have evolved. While we have focused on ‘Markets’ business within the banks, which as a sub-sector are the furthest ahead and give us the best view of ‘leading practice’, our intention was to provide a representative view across organisations of different size: six participants could be described as being Tier 1 with the remaining 15 representing banks of various sizes with different international footprints.

Contact us

Rukshan Permal

Partner, PwC United Kingdom

Tel: +44 (0)7595 611533

Graham Ure

Financial Crime Technology Partner and Co Lead for Market Abuse & Surveillance, PwC United Kingdom

Tel: +44 (0)7889 644672

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