Reaping the Benefits of Unified Data: Why Integrated Surveillance Is a Journey, Not a Solution

If well implemented, the potential performance and revenue improvements go far beyond compliance

Friday, September 24, 2021

By Matt Smith


Integrated (or holistic) surveillance has been a hot topic in the financial services industry for several years, because of the view that bringing together diverse data sets and analyzing them holistically will lead to enhanced risk mitigation and business insights.

Consequently, many larger firms, particularly on the sell side, have started to invest in the area. However, due to the significant investment required to get it right, many smaller firms have not yet started to develop an integrated data program for surveillance. Yet, in this digital world, effortless access to information is key for agility as it allows firms to quickly identify opportunities. Scattered data, on the other hand, impacts the time it takes to respond to threats, market movements and regulatory changes.

To stay ahead of the curve, firms will have to start to seriously think about how to bring together such data as transactions details, communications, market data and more. It requires investment, as there are no quick fixes, but when executed correctly, integrated surveillance is a great opportunity to establish a rich, value-adding data set that can power entire organizations.

As with almost all compliance requirements, it is all about data - and data is forever changing and growing. As such, integrated surveillance needs to be approached as a journey instead of a solution.

Managing Complexity

Before delving in, it is important to establish what integrated surveillance is. For some firms, it means stitching together different data sets in order to improve alerting. For others, it means managing global rules and all of an organization's surveillance obligations through a single platform.

While there are varying definitions and opinions, we look at integrated or holistic surveillance as the ability to overlay complex data sets (eComms, vComms, trades, orders, market data, news and more) on one platform in order to enhance compliance monitoring, meet multiple regulatory obligations and develop cross-business insight.

“Work with technology that can ingest data in any format,” says SteelEye's Matt Smith.

An integrated approach is vital in the fight against market abuse and financial crime. Criminal behaviors have two typical identifiers: They start small and grow; and the activities are coordinated - people do not tend to commit crime with people they do not know.

To detect illicit behavior, firms need to be able to monitor data that can identify relationships and the progression in behavior, which is only possible when you can combine trading data with communications. Bringing this data together can also enable firms to start preventing financial crime by detecting early warning signs, rather than reacting after market abuse had taken place.


Getting Surveillance Right

One of the most important aspects of getting an integrated program right is figuring out how different data sets meet and interact. How do you overlay legal entity identifiers (LEIs) with trader IDs, chat profiles and phone numbers so that a link can be established? This is an extensive data-mapping exercise that many have tried and failed at.

Most traditional regtech or surveillance vendors approach regulatory requirements from the perspective of the output - what firms need to report or store. As a result, many have devised prescriptive and inflexible data schemas that financial institutions must meet before their data can be ingested, and a platform or tool used. This approach is expensive, resource-intensive, and makes it very difficult for firms to get a return on investment.

With growing data volumes and varying formats, the key is to work with technology that can ingest data in any format, that can also capture new channels and sources quickly.

Technological Assistance

Another key consideration, as firms try to combine data in different formats, is how to ensure that all the relevant metadata is captured and nothing is missed. With a rigid data schema, it is nearly impossible integrate new formats that do not fit the prescribed template - or guarantee that everything is being captured.

However, there are data-driven platforms that can automatically determine the common denominators and key differentiators between different data types, and then link data together using the commonalities while also bringing in the unique fields. The use of artificial intelligence or machine learning can thereafter learn what a piece of data is meant to look like, so that flags can be raised when there is a change.

Technology has a significant role to play in facilitating integrated surveillance, and while many vendors still have some way to go in their ability to make sense of vast volumes of data, there are solutions and platforms that already enable firms to take a more future-proofed holistic approach.

Reaping the Benefits

While merging data sets that do not naturally work together is difficult to get right, there is a massive upside if executed correctly.

-- Enhanced compliance: The ability to monitor a wide range of data in tandem allows firms to better identify, investigate and report on risks. It is not feasible to manually monitor employees; surveillance needs to be technology-led and data-driven, where firms can cast as wide of a net as possible.

When done holistically, surveillance can be done internationally, so it is not about one team, broker, or section. Trading is global, and surveillance needs to be, too.

While regulators do not specify that surveillance needs to be carried out holistically, they are increasingly interested in seeing firms adopt a more integrated framework for dealing with data. This pressure will only increase as technology evolves and regulators themselves enhance their data management capabilities.

-- Business value beyond compliance: Data captured for surveillance and compliance purposes is hugely valuable and can power analysis far beyond the compliance department, driving performance and revenue. For example, the ability to overlay relationship and communications maps with transaction details, trade outcomes and wider market data can provide valuable insight into the relative performance of different teams, individuals, and even execution speed.

An integrated program is also a big opportunity to bring together projects across large organizations where many compliance functions still operate in silos, reducing duplication of work and increasing efficiencies.

Future Readiness

While the reality of holistic surveillance is still far away, there is a real desire in the industry to integrate e-comms and trades on one platform - a great first step on the journey to integrated data.

It is important that firms view the development of an integrated program as a journey instead of a set project.

The data landscape will continue to change, and firms need to focus on deploying a solution that enables them to monitor the data they need today and ingest new data sources tomorrow - where the data captured can be shared with the wider business. Unless these capabilities are developed, investments into integrated surveillance will reap limited reward.

Matt Smith is chief executive officer of compliance solutions company SteelEye.


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