Having just passed the Market Abuse Regulation (MAR) deadline in July 2016, further regulation in the shape of MiFID II (Markets in Financial Instruments Directive) /MiFIR scheduled for early 2018 (delayed from 2017) means there will be little respite from regulatory pressure for buy-side and sell-side firms in the coming year. How can technology help these firms continue to do the right thing in terms of compliance?
Buy-side and investment firms have already had a wake-up call with the arrival of MAR in July 2016, particularly with regard to the increased requirement for detailed record keeping of communications. The latest updates to MiFID II and MiFIR regulations in the supplementing Directive 2014/65/EU build on the requirement for detailed record keeping:
“MiFID II and MiFIR can be summarised as enabling financial markets to work for the benefit of the economy, supporting jobs and growth through making them safer and more transparent and enhancing investor confidence.”
Article 2 1(f) of the MiFID II/MiFIR “Firms must introduce adequate organisational arrangements to minimise the risk of the loss or diminution of client assets, or of rights in connection with those assets, as a result of misuse of the assets, fraud, poor administration, inadequate record-keeping or negligence.”
In the Commission delegated regulation of 25.4.2016, Article 76 addresses the requirement for recording of telephone conversations or electronic communications, stating, “Investment firms shall establish, implement and maintain an effective recording of telephone conversations and electronic communications policy, set out in writing.” And in Article 76 clause 10 it states, “Records shall be stored in a medium so that they are readily accessible and available to clients on request.”
With the above in mind, the raised surveillance standards required by MiFID II are giving rise to increased innovation in market surveillance. Solutions to address the increased regulatory demand for trading and communications surveillance are now becoming available. They include b-next’s Digital Communications Analytics (DCA), an innovative trading and surveillance technology solution that combines and integrates advanced speech and digital text analytics with capital markets surveillance. The solution allows users to search and analyse voice call recordings and digital text communication including email, chat, social channels, by time frame, trader, counterparty and trader desk.
The technology makes it possible to search, find, analyse and report on voice and text-based data, all at incredible speeds. The wide range of data supported includes: SMS / Text messages; Instant Messaging; Emails; Facebook; Twitter Feeds; Market Data / News Feeds. Multi-language analysis and reporting ensures that a tamper-proof audit trail history of alerts and calls is available across 40+ languages.
The technology also offers market participants several specific cost saving benefits. These include the prompt identification and escalation of fraudulent activity, so participants can protect themselves against fines and penalties. As well as flexibility and control at a local level.
When integrated with a market surveillance platform, other wider benefits can be derived. These include, the ability to respond quickly to regulatory changes and reporting requirements; reduced workload and costs associated with market surveillance; proactive management of suspicious trends; and improvements to the quality of market abuse monitoring, risk management and compliance oversight.
As market participants prepare for MiFID II and MiFIR, and as regulatory measures evolve, automated surveillance systems can help sell-side and buy-side compliance officers ensure they are prepared and ready to comply with existing and new regulations. And, by implementing leading edge technologies and adopting best practice in market surveillance, firms will not only be able to identify potentially fraudulent activity involving market abuse, they will be sending a powerful message to the markets regarding their commitment to the very highest standards of compliance and integrity.
 COMMISSION DELEGATED REGULATION (EU) Article 76 Recording of telephone conversations or electronic communications