In 2017, the UK’s Financial Conduct Authority (FCA) recorded an approximate 75% increase in the number of investigations for potential market misconduct, compared with the previous year. What’s the reason behind the rise in numbers? Mark Steward, Director of Enforcement and Market Oversight at the FCA, credits the introduction of the Market Abuse Regime (MAR) in 2016 as one of the key factors.
Why does the industry need MAR?
Due to the scale and damage of recent high-profile scandals, such as LIBOR rigging and the manipulation of FX benchmarks, the financial industry is keen to restore client confidence. The FCA has worked closely with the industry in implementing new rules that aim to increase transparency, such as those introduced by MAR and the new Markets in Financial Instruments Directive II (MiFID II), which went live on 3 January 2018.
Most notably, this legislation extends the scope of the reporting regime for firms in terms of markets, platforms and conduct. The direct result of this, although still in its early days, has meant more data being reported to the FCA in the form of Suspicious Transaction and Order Reports (STORs). According to the FCA’s last annual report, the initial response “has been positive” with 1,898 STORs received in the last six months of 2016, compared with 1,110 STRs (the reporting format prior to MAR) in H1 2016.
Storage and retrieval issues
One of the key challenges MAR has thrown up for firms is that much of their data is currently recorded and stored separately in silos. Not only is the data often separated by business function or asset class, but it may also be stored by communication channel, for example by email, trading turret or chatroom/instant messenger content – and whether a trade was conducted electronically or by voice.
The problem with this siloed approach is the additional time and effort needed to access the required data and aggregate it into a usable format. By taking a more holistic approach to data capture and storage across the whole organisation, firms can go a step further and start combining datasets from across the business to help provide additional insights into trading activity, investment opportunities or operational efficiencies.
The way forward?
At Telstra, we believe the key to successful compliance when it comes to MAR and similar regulations is to be proactive. So, instead of only focusing on trying to catch misconduct months or even years after it has taken place, technology now enables firms to identify – and stop – unwanted behaviour in near real-time.
For example, ‘Telstra Trader Voice’, which is powered by enepath, meets the compliance need for a full audit trail of voice recordings. Not only does it support data capture, archiving and playback of recordings, but this data can also be integrated with other systems.It enables traders the same functionality when they are on the go, including all audit and collaboration facilities. Telstra Trader Voice also makes it easier to plan and modify a voice solution for the trading room, freeing up more time to devote to the core business.
Telstra Trader Voice is underpinned by Insightful Technology’s Soteria™ platform, which can capture, store and reconstruct mobile and fixed line phone calls, as well as other business communications, in a normalised data format. In addition, firms get access to a secure cloud-based or on-site storage platform, insightful analytics, and – most importantly – instant case reconstruction, meeting the strict compliance and governance regulations of both MAR and MiFID II.
While most firms recognise the benefit of MAR, it is also possible to leverage market surveillance technology to help create additional value at both the business and trading level, through the market insights offered by the captured data. When firms move beyond siloed data sources and adopt a more holistic approach, they are able to derive additional long-term benefits from compliance technology, such as supporting trader productivity and business continuity, across different locations.
By taking a more proactive approach to market surveillance, budgets spent on compliance can work harder for you in a wider business context – as well as protecting your organisation’s brand and reputation in the market.