Expectations are rising for investment banks to mitigate conduct risk effectively. Banks must respond to the challenges posed, many of which I discussed last week, to avoid potential damage to their reputation and financial results. So, how can firms improve their surveillance and monitoring capabilities, and establish an effective mitigation approach?

A robust surveillance framework requires a holistic approach

Rather than focusing on one area of the trade lifecycle, the future of surveillance is becoming more holistic and encompasses front- to back-office processing. Firms can benefit by focusing on five specific components of trade surveillance:

  • Set governance standards. Investment banks should establish a dedicated trade surveillance function led by a single, accountable executive.
  • Integrate surveillance into processes. By implementing a surveillance process to oversee pre- and post-trade surveillance, firms can maintain an end-to-end view of the business. These processes should be integrated into other forms of bank surveillance, such as employee e-communication.
  • Train and retain talent. Build a culture of integrity and keep pace with changing industry demands by providing a dedicated curriculum and continuous training.
  • Use the latest technology. Apply an effective data governance strategy with dedicated warehousing to ensure trade and client views can be provided on demand. Data analytics can identify patterns to help avert issues before they occur. The good news is that industry leaders are starting to recognize the critical role of analytics. In a recent Accenture survey, 60 percent of institutions indicated that enhancement of analytics and modeling capabilities is a current management priority.
  • Learn lessons and continually improve. Surveillance is an ongoing challenge and firms will need to test and refine processes, as well as conduct ad hoc quality checks.

Further work remains for banks to establish a holistic approach to trade surveillance. However, the rewards of a more effective mitigation approach are significant. Banks that successfully deliver the required change are set to emerge more resilient and more competitive in what remains a fast-changing industry.

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