We have become used to the message “…this call is being recorded for quality control purposes” as standard operating procedure. But for various reasons institutional financial services businesses have not yet adopted automated voice surveillance and the risk management advantages it provides. Why are the calls being recorded in the first place, but then not surveilled? Who in the market is surveilling who? Verbal interactions (internally and externally) are still key to markets and banking businesses, and now remote working and associated risks become the main drivers.

A minimalist set of regulatory and legal requirements, combined with a developing technology landscape, have resulted in passive approaches to voice surveillance. Firms will take some comfort in a sampling approach, one-off trade reconstruction exercises, and also accessing recordings for playback if a specific issue arises, such as addressing client complaints. This is a reactionary set of processes, and unlikely to be able to meet the conduct risk management challenges going forward.

Considering the topics of written electronic communications and trades surveillance, regulations are clearer as FINRA, the CFTC, and the UK/EU (via Mfid/MAR), have more precisely defined the surveillance and retention requirements. But even with these rule-sets, firms have implemented a wide range and depth of surveillance strategies, under the umbrella of being “risk-based”. Generally, the approaches deployed remain aimed at the core regulatory requirements in the first instance, and addressing specific supervisory needs follow, but usually fall short due to lack of budget. In fact, most firms are increasing the cost pressure on surveillance functions as remediation programs wind down and BAU takes over.


The business case is clear

A progressive surveillance function is foundational to strong supervision and conduct programs, and has moved beyond specific regulatory rules compliance. In these volatile times, the surveillance strategy should be continuously evaluated to ensure it is risk-adjusted, relevant and sustainable. Among the commercial benefits and risk management capabilities this brings, the following should be considered:

    • Increasingly complex Supervision and Conduct Management requirements
    • Shareholder protection
    • ROI and Client opportunities

The good news is that designing and delivering an effective surveillance program is achievable, and can be implemented in a way that minimizes operational risks, allows for component inter-operability into a larger eco-system, and can be customized in a risk-based fashion.

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