Keeping abreast with regulatory change, improving data quality and managing risks and controls within the business are just some of the headaches facing compliance teams, according to Brian Lynch, President of SteelEye US, said.
“Investing in technology is key for firms to ensure they can identify risks before the regulator comes knocking,” he told Traders Magazine.
He added that despite the quick pace that technology has evolved, many compliance teams are grappling with the challenges presented by disparate data sets, outdated processes, untailored systems and legacy technology.
SteelEye’s 2022 Compliance Health Check report, which surveyed 170 senior compliance professionals in financial services, found that nearly half (44%) of compliance professionals struggle with challenges related to data management, including overlaying communications and trades to manage market abuse risk; using Management Information (MI) efficiently to demonstrate risk; and consolidating and normalizing of structured and unstructured data.
According to Lynch, as the regulatory landscape becomes increasingly complex, the market is gradually shifting towards holistic, integrated and data-driven compliance practices.
“By prioritizing how to bring together disparate datasets and make better use of data, firms can more easily mitigate risks, extract business insights, and address regulatory change and other compliance challenges that are likely to emerge down the line,” he said.
He noted that the benefits of covering more areas of risk and overlaying multidimensional data are undeniable – from increasing intelligence, to speeding up processes, and reducing false positives.
“We expect financial firms themselves will start to demand holistic data management,” Lynch said.
“The key is to look for compliance solutions that natively bring together trading activity, communications, market data, and other important data sources, to ensure complete oversight,” he said.
Regulators were notably more assertive in 2022, as evidenced by the SEC’s record breaking $6.4bn in financial penalties, according to SteelEye’s inaugural Fine Tracker.
This included fines totaling $1.1bn for 16 Wall Street giants for failing to monitor or prevent their workers from using unauthorized messaging apps.
“While regulators find it relatively difficult to prosecute against market manipulation breaches like spoofing due to the need to prove intent, communications compliance breaches are relatively more easy to identify,” Lynch said.
In 2022, the SEC filed a total of 760 enforcement actions, a 9% increase compared to 2021.
Lynch said that 2022’s most notable enforcement example was the crackdown on the unregulated use of e-Comms across Wall Street.
Morgan Stanley, Barclays Capital, Bank of America, Citigroup, and JP Morgan all faced fines for failing to capture and store business communications that were taking place on channels like WhatsApp, WeChat, Telegram, and Signal, he added.
Related SEC fines amounted to $1.1bn, with CFTC ordering financial institutions to pay $710m.
Lynch said that the Democrats are known to take a harder line on regulation, and 2022 provided a perfect example of this through the SEC’s focus on regulatory reform and enforcement action against compliance breaches.
Meanwhile, whistle-blower programs are becoming increasingly robust, and regulators are using powerful data analytics tools to identify malpractice more accurately among the companies they regulate, meaning more firms are at risk of scrutiny, he added.
“While Gurbir S. Grewal, Director of the Division of Enforcement at the SEC, recently said that they “don’t expect to break these records and set new ones each year because we expect behaviors to change,” we anticipate that 2023 will be another enforcement-focused year both in the UK and the US,” Lynch said.
He added that at a recent conference, a senior rules maker from the FCA said, “fines are very powerful agents of change and a key focus” and “no stone will be left unturned.”
This, combined with the SEC’s powerful stance on enforcement action, signals a clear drive on both sides of the pond to crack down on financial misconduct and market manipulation, according to Lynch.
“We expect to see a continued push from the SEC to enforce communications compliance rules and a focus on market manipulation on social media. The industry is also going to see increased regulation of cryptocurrencies in light of 2022’s crypto crash,” he concluded.
