Just like politicians have extra checks when opening bank accounts, traders, brokers, and financial advisers are subject to extra monitoring to ensure trading laws aren’t being broken. This includes the monitoring of communications.
Yet many people today react strongly to the idea of communications surveillance and jump to the conclusion that it is spying. In this article, we address why communications surveillance rules play an important role in ensuring fair and stable financial markets. We also look at why it should be viewed as an essential tool that enables financial firms to ensure they are operating compliantly for the benefit of the wider industry and economy.
Politicians are more susceptible to bribery and corruption because of the influence of their roles. That does not mean that all politicians are corrupt, but history shows us that it is more likely in this profession. Similarly, traders and brokers are more susceptible to engaging in unlawful activities due to the immense pressure they are under to deliver financial results for their businesses. This is not to say that all financial professionals engage in illegal practices, the majority don’t, but one rotten apple can spoil the whole barrel.
Insider trading, unlawful information sharing, and market manipulation are all illegal activities that financial services firms are required to monitor for in accordance with market abuse laws and regulations.
A powerful way of detecting and stopping market abuse activities, such as insider trading, is by capturing and surveilling communications by regulated employees. Often referred to as communications surveillance, supervision, or monitoring, this is a legal obligation set out by the FCA, ESMA, SEC, FINRA, CFTC, and many more financial regulators.
These rules are a key component of financial regulation (FinReg) and exist to ensure transparent and fair trading in order to stop rogue traders and bad actors. After all, many of the rules were born out of the 2008 financial crisis and are there to promote stability within the financial markets, protect investors, and create a fair marketplace.
However, many people, especially those outside the industry, react strongly to the term “surveillance” and the idea of a professional’s communications being monitored. Out of context, this is understandable, but within financial services, it is important to encourage those with these views to remember that the rules are there for a reason. The intent is never to encroach on the privacy of individuals who are operating compliantly but to identify those who are intentionally or unintentionally breaking the law.
The media has played a role in enforcing this negative perception. Unfortunately, several journalists have pursued sensationalist headlines by positioning communications surveillance as “spying” on staff and instilling a negative reputation on the technology by nicknaming it “SpyTech.” Not only is this misleading as it does not paint a fair representation of why communications surveillance rules exist, but it is also dangerous as it risks firms not investing in technology to support their compliance requirements.
Contrary to this misconception, individuals both within and outside the industry should be applauding the fact that firms are taking charge of their surveillance programs to enhance the monitoring of their communications and better spot market manipulation. This is especially important following the sky-high fines that have been handed out to tier one banks in the US for failures related to the monitoring of employee communications.
Many of us have watched the Wolf of Wall Street and shows like Billions and have seen the impact that illegal trading practices such as insider trading and market manipulation can cause. Therefore, it is important to remember that, to help prevent this kind of activity, communications surveillance is required.
Here are some reminders about communications surveillance within financial services:
Communications surveillance is not optional for financial services firms but a legal requirement under regulatory rules set out by the FCA, ESMA, SEC, FINRA, CFTC, and many more financial regulators.
The rules do not cover all employees within these firms but only those who are regulated under the relevant regulations.
The rules do not exist to “spy” on staff but are designed so that financial firms can identify traders who are on a path of making poor decisions or that have intentionally or unintentionally manipulated the markets.
Failure to capture communications used by regulated employees can lead to severe fines for financial firms, as high as $200M as recently demonstrated by several tier one banks in the US.
Both regulators and employers would agree that surveillance technology should not encroach on personal privacy – the data should not be used beyond the purposes for which it is collected but only to identify compliance breaches and poor practices.
Communications surveillance is not about listening to the conversations of any one person but the ability to analyze volumes of data to detect language that could be linked to nefarious activity.
We need to move away from viewing communications surveillance as “spying” and technology as “SpyTech” and instead recognize that it is a vital aspect of compliance.
After all, the prevention of market abuse and manipulation of the financial markets is in everyone's best interest, especially if we do not want the history of 2008 to repeat itself.
How SteelEye can help
SteelEye’s Communications Record Keeping and Surveillance platform stores and monitors communications data from a wealth of eComms, vComms, and traditional channels in a compliant, immutable vault. The platform empowers companies with advanced surveillance algorithms and intelligent lexicon searches that enable them to identify early warning signs of misconduct and market abuse, all the while ensuring that there are tight permissions and privacy controls in place.
Enhanced risk detection and reduced false positives
All-in-one platform to monitor, manage and control your communications data
Data consolidation of structured and unstructured sources
Voice transcription and translations (54 languages)
Advanced call analytics and AI-driven lexicon
Real-time tracking and audit trail for demonstrable compliance
Fast record retrieval for data requests and auditing purposes
Sophisticated communications oversight technology and machine learning capabilities
Highly customizable and scalable software