Category: Insights

The challenge of trade surveillance and market abuse

The surveillance of trading in energy markets is a key focus for compliance functions wanting to prevent market abuse and remain compliant with global regulatory expectations. HC Insider explores how innovative technology is helping organisations to future proof their business.

Human Capital has partnered with intelligence provider 1LOD to become an Associate Sponsor for the Energy Trading Surveillance Deep Dive event on 14 and 15 September. At the event, senior surveillance and compliance leaders, along with regulators, will debate best practice in trading and communications surveillance for the energy markets. HC Insider speaks to the event’s sponsors, insights company Behavox, communication surveillance platform Relativity and communication solutions provider Truphone, to find out how they work with clients to help protect their organisations.

HC Insider: Please tell us about your company.

Jordan Domash, General Manager at Relativity: Relativity Trace is a communication surveillance platform that detects insider trading, collusion, and other forms of market abuse in real-time. The solution increases the efficiency of compliance teams performing communication surveillance by pulling communications from every enterprise system, leveraging a suite of AI capabilities to reduce false-positive alerting, and providing flexible support to any organisation’s workflows. Our company’s mission is to build a world free of professional misconduct.

Fahreen Kruji, Chief Customer Intelligence Officer at Behavox: Behavox is an insights company. We provide AI-powered insights that protect companies and their employees from illegal, immoral, and malicious behaviour. Insights are generated by analysing communication data from email, instant messaging, voice, and video conferencing platforms. By proactively monitoring these platforms using AI rather than manually reviewing content, employees are protected while maintaining their privacy. We want to protect companies and their employees, while also making workplaces safer and more engaging.

Paul Liesching, Global Director Enterprise Sales at Truphone: Truphone is a provider of global mobile communication solutions. That stretches from the Internet of Things to enterprise mobile plans for multinational organisations, for whom we enable their employees to communicate on their mobile devices all around the world. In addition, we support the global financial markets to be compliant by enabling mobile voice and SMS recording – and we're lucky enough to do this for 10 of the world's 12 largest investment banks across four continents.

HC Insider: How do you work with clients to understand their challenges? 

Domash: One of Relativity’s core value propositions is flexibility. With a hands-on approach, our product specialists become part of their team so they can pair our out-of-box templates including policies and workflows with their specific requirements to customise the solution to their firm.

Kruji: It’s very much a partnership, so their challenges become Behavox’s challenges. Our global customer experience enables us to learn from customers across the globe and, in turn, share those learnings with other customers. We also have subject matter experts who have worked in similar roles to the people with whom they are interacting with. It is these insights, coupled with learnings from the CRX Community (a Behavox-led initiative, aimed at bringing compliance professionals together) that we share with our clients to better understand and address their challenges.

Liesching: We have many different aspects of our business, but if we focus specifically on our mobile compliance for financial markets, it's about understanding. Understanding what the regulations are – so, what are the financial institutions obligations? Then it's to understand their users, and their user requirements. What devices do they need? How do they use those devices? What tools do they need to enable? And then it's understanding the compliance aspect of the bank or the financial institution themselves. For example, how do they want to manage their surveillance? How do they want to manage their monitoring? What tools they need enabled to make that happen? Then we bring those aspects together to create a solution that fits their needs.

HC Insider: How can firms future proof against rapidly evolving behaviour patterns? 

Kurji: Behaviour may change, but greed doesn’t. It’s human nature, especially when large sums of money are involved, to try and manipulate or benefit from the system. Unfortunately, it’s also human nature for some employees to behave badly and inappropriately. In fact, during the pandemic, we conducted a study (Behavox Enterprise Conduct and Risk Report) into the effects of working from home on workplace misconduct, and discovered the prevalence of misbehaviour, whether compliance breaches or workplace misconduct, remained the same, or in some cases were even higher. For example, 8% of all respondents said they knew of a colleague who had willingly introduced a security threat, while 10% of respondents said they had witnessed workplace misconduct, such as racism, sexual harassment, or bullying. People don’t necessarily change, just the circumstances.

Liesching: If anyone said three years ago that the global trading floors of financial institutions would move to people's kitchen tables and spare rooms, nobody would believe that it was possible, but it was. The financial markets were very effective at reconfiguring how they operate to enable remote working. Organisations now must accept that remote working constitutes some or all of an employee’s working life. But we need to look at how financial firms can empower their employees to communicate effectively and to do their job as if they were on the trade floor and remain compliant. Another aspect that is going to become equally challenging is security, because now we're working on remote Wi-Fi networks, and we're working on domestic Wi-Fi networks, or even public Wi-Fi networks. I think we’ll see more activity around securing remote workers to ensure their communication is not compromised.

It’s human nature, especially when large sums of money are involved, to try and manipulate or benefit from the system. Unfortunately, it’s also human nature for some employees to behave badly and inappropriately.

HC Insider: How do you track return on investment? 

Domash: There are three main drivers of a compliance team’s return on investment in software. Firstly, there are reduced false positives. Our clients have seen a 92% reduction in false positives through AI and other technology to reduce irrelevant and duplicative content that should have never been alerted on. That means we can spend 92% less time reviewing alerts and use those savings to do other high value activities. Secondly, they benefit from better detection of risks: Our clients have seen a significant increase in the number of escalations and the amount of risk detected. With less time wasted on reviewing false positives, you have more time to investigate the actual risks. Thirdly, there are no infrastructure costs. As a SaaS platform, we manage the infrastructure.

Kruji: Our north star is identifying the true positives and risks that keep our customers up at night, whether that be wash trading, collusion, bribery, or inappropriate behaviour between colleagues. We track success by the number of true positives that we identify, while ensuring operational excellence.

Liesching: Like most businesses, we're revenue driven, so we're looking to increase our revenue and grow as rapidly as we can. We also want to improve our margins and improve our efficiency.  We believe the greatest enabler of this is customer satisfaction. If we can keep our customers and their end users happy, and we can enable our customers to be successful, then revenue and margin grows naturally. We manage that in several ways: we use Net Promoter Score to score our customer support and service; we also have regular service meetings with our customers, either monthly or quarterly, to take direct responses from them to see how we're operating, and if we are achieving and supporting them to achieve their ends and their needs and their goals. From the technical perspective, we monitor the quality of our network on a minute-by-minute basis, and a huge amount of investment goes into always ensuring that.

HC Insider: How do you make your product fit for purpose for commodity trading companies? 

Domash: Commodity trading compliance teams need to identify suspicious behaviour and intent quickly, while minimising the interruption of trading activity. Using Relativity Trace, you can ingest all forms of communication—including email, chat, and audio and get alerts in near-real time and see who’s talking to whom, how often, and what about. We do a few things specifically for commodity trading companies. We understand each individual and their role. We know that risks for a trader are different from a scheduler and risks for one commodity are different to another. We build our platform so the rules that apply to an individual map to their risks. We are also designed for a multi-lingual, global firm.

Kruji: Behavox’s processes, products, and technology lend themselves to identifying indicators of risk across several regulated sectors, including commodity trading. We have studied enforcements and worked closely with experienced professionals in the commodity trading space.

Liesching: For commodity trading companies, Truphone looks at the regulation that applies to them, and that could be Dodd-Frank, MiFID II, or it could be regulations from the FCA. The regulations are quite common across most equity classes, and  we try to understand and interpret what the regulator is requiring their regulated users to do. It can be difficult to interpret, so most importantly, we talk to our customers, because how one interprets regulation can differ from customer to customer, and we must conform to what their requirement is.

HC Insider: How receptive do you find clients across different industries when it comes to change and innovation? 

Domash: Clients have a deep appreciation that technology is core to surveillance. We need technology to sift through the massive number of communications happening in our organisations every day. 

With all the conversations we have with industry leaders, it’s clear that the majority aren’t happy with the state of surveillance technology today. There are way too many low-quality alerts. Given how core technology is to surveillance, even the most senior compliance and surveillance executives are pretty invested in innovation. With that said, we’re in a highly regulated industry, clients are cautious before making a big change. There is typically significant testing before deploying a new solution or even a feature.

Kruji: It very much depends on the individual firm, but generally speaking, our customer base is our customer base because they care about doing the right thing, not just ticking boxes. We find that firms that care about doing the right thing are receptive to change and innovation. We take great care to make sure all innovation is documented and explainable to internal audit and regulatory bodies. 

Liesching: Compared to some industries, I think the financial markets are highly innovative. Certainly, if you look on the investment banking side, and when we consider the last 18 months, innovation has been incredibly rapid. A lot of banks and financial institutions have learned that they can be very agile. Historically, financial institutions have tended to get into a multilayered approvement process that can slow things down a lot, and I think organisations got into a bit of a rut around this. But, when they were forced to move quickly and be agile around technology, they did it – and they did it very well.

HC Insider: What do you think are the biggest barriers to innovation within your sector?

Kruji: I think one of the most obvious barriers to innovation within the sector is data, or rather a lack of access, or ability to garner insights from it. However, we are fortunate to have an incredibly motivated team and customer base that is committed to innovating and driving meaningful change. The second biggest barrier is a reliance on on-premise solutions, where we see companies holding onto on-premise, but expecting Siri-like analytics, which is neither feasible, nor cost effective. Budget constraints can also be a barrier. However, it shouldn’t really be an excuse anymore, because if a firm truly wants to improve their compliance function, cut risk, and propel their business forward, SaaS deployments are fast, inexpensive, and can generate insights in hours, not months. 

Liesching: In the financial markets, the biggest barrier is probably regulation. Compliance regulations are only increasing globally, and they are becoming more restrictive. Another limiting factor is the potential resistance to change within organisations. The soft skills around establishing an environment that will embrace innovation is probably the hardest thing to do – probably harder than the innovation itself.

HC Insider: What will surveillance functions look like in 5 to 10 years’ time? 

Domash: Surveillance teams will all be using AI-powered, cloud-based surveillance systems. Innovation in artificial intelligence will make it available to the masses and not just Tier 1 Banks. We’ll make significant advancements in explainability, so alerts aren’t a black box where it’s unclear why an alert was triggered. We’ll also have significantly lower false positives.

Kruji: Who would have thought five years ago that coverage of MS Teams, WhatsApp, WeChat, and Zoom would be critical to a surveillance team? In five years’ time there could be another leap in communications that will require surveillance professionals to stay one step ahead. I think in workforces, we will continue to see a push towards subject matter experts that are investigators and business savvy, rather than just alert reviewers. In the analytics space, we will see the usage of random sampling and lexicons decrease. We will also see a greater push towards analytics being used to predict and prevent illegal, immoral, and malicious behaviour, while continuing to maintain the integrity of employees’ privacy.

Liesching: Every CIO in the world, in the financial markets, hates writing out cheques for compliance and surveillance technology because it's seen as a cost. You're paying to establish the surveillance technology to conform to the regulation, and the regulation itself is reducing the capabilities of the business to be efficient. But I think this view of compliance is going to change over the next five to 10 years because the data we are collecting is being recognised as a massive content resource by organisations. With the growth of AI and machine learning, we can start to create business insight around this recorded material. Right now, we're just using it to make sure that we're behaving as an organisation, but we could use it to see how we operate as an organisation. As we collect this data, we can overlay AI and machine learning to give us insight into business performance

Book your ticket today to hear Jordan Domash, General Manager at Relativity, Fahreen Kruji, Chief Customer Intelligence Officer at Behavox, and Paul Liesching, Global Director Enterprise Sales at Truphone speak at the Energy Trading Surveillance Deep Dive, taking place on 14 and 15 September.