Instant messaging under MiFID II will soon require banks and asset managers to store data for five years or more. Will they have the tools to spot market abuse and also ensure compliant communications?
From collusion, insider trading and price rigging to rogue traders and trade scandals, the subject of financial market abuse makes the headlines all too often.
To prevent future market manipulation scandals and permeate a just and transparent financial system, regulators have placed even higher expectations on financial institutions to record and monitor all electronic communications.
Regulators now issue best practice guidance through a code of conduct, a circular or a mandate in their efforts to curb bad behavior.
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The message in every guidance issued is consistent and clear every time — that there is an increased focus on the recording and monitoring of these electronic communications regardless of a transaction’s outcome.
Institutions must review and implement change in many work streams to keep up with these requirements.
For example, to comply with one of the common data retention requirements for MiFID II and other similar regulations, firms will need to invest in the secure storage of electronic communications including voice, email, instant messenger, trade data and more for a minimum period of five years.
Some authorities may additionally request access to the previous seven years, or even up to 10 years of history.
It is no surprise that investigations involving messaging are becoming more prevalent as firms are being policed more often.
Coupled with the anticipation of new challenges emerging from political events such as Brexit and others, firms will have to be prepared to face further uncertainty, as more compliance and regulatory implications unfold.
As the regulatory environment becomes more demanding, so does the competition for technology platforms offering compliant collaboration; messenger tools with in-built compliance controls, monitoring and detection capabilities.
Numerous firms will look to purchase systems (if they haven’t done so already) that are not only able to securely retain data but also provide a user interface to monitor the captured content to better respond to inquiries.
But what if firms were also able to detect an activity as it happened, or even before it happened?
The good news is that there are many companies who currently offer scalable archiving and surveillance services that are recognized by the governing bodies, but we are beginning to see new tech developments emerging.
Surveillance tools are continually improving and programmatic monitoring of trends are able to detect market abuse much sooner.
Many of the tech companies are introducing improved analysis tools that highlight more clearly the behavior leading up to, and post-event as intelligence about trading culture continues to grow.
The pressure for companies to play ball will not subside anytime soon as the regulatory complexity intensifies, particularly around trade surveillance and data retention.
Market players will need to continually review and invest in a robust messenger compliance program to help realize the ideal of a transparent financial system and restore confidence in the industry.
Thomson Reuters Messenger Compliance offers a comprehensive suite of free messenger compliance services that can be easily configured and integrated, with no need to buy any costly hardware or software.