Keeping Up with Compliance

Earlier today, I spoke to several people from NICE Systems, who took me through their latest developments. One of the topics discussed was “proactive compliance,” the idea that monitoring capabilities should be advanced enough to allow compliance officers to intervene before a regulatory event.

This highlights the way in which traditional roles within a firm—those of the front, middle, and back offices are slowly intertwining and breaking down barriers in ways that weren't possible, or necessary, before. An aspect of NICE's monitoring system is designed specifically with this in mind through its use of intelligent voice record searching. For instance, a compliance officer can set parameters in the search that will look for preponderance of phrases on mergers and acquisitions (M&A) desks. If one desk is working on a deal between two companies, and another desk begins talking about those companies with frequency and in certain ways, the conversation will be flagged as a possible insider trading risk, allowing early intervention if necessary.

Woods and Trees
This kind of technological innovation is changing the way the capital markets work. Often, attention is focused on lightning-fast trading, or cross-asset platforms, or variable risk moderators bolted on to a backbone, but it's easy to forget that there's a lot of advanced work going on around the edges. It's certainly not something that the regulators have missed—the latest iteration of the Markets in Financial Instruments Directive (Mifid) has ramped up mandates for communications monitoring in a big way, and begins to touch on extraneous areas that filter down to the locations of offices. Similar efforts are under way in the US, with the Dodd–Frank Act.

Regulation and mandated monitoring are seen as a burden, but there has been an interesting turn over the last few months where vendors, in particular, outside of the spin associated with new launches, are looking at ways in which reform can be turned into opportunity. Best execution, as an example, need not be onerous but a way to distinguish the performance of a broker in a competitive way, turning reporting into free marketing. NICE's software, as well, allows compliance to work more organically in a business rather than being a foreboding road block that people try to skirt around or avoid.

As always, it comes down to efficiency in managing risk. You can't put up a tent if four people doing it are each working to their own blueprint. You can do it if that blueprint is a component of a larger floor plan, and each part is working in sync.

I'd like to talk to people who work in compliance particularly, about the ways in which technology is changing their job roles within their firms. Please feel free to call me on +44207 316 9811 or e-mail james.rundle@incisivemedia.com.

 

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