There has been so much “market cop” action in financial services recently. Here. Here. Here. etc. It’s one of those road signs that we are moving out of a nascent compliance market into one reaching real maturity.
Many, many internal surveillance conversations have unfolded over the last couple of years. At some point compliance ends up in the CFO’s office and asks a simple question to the effect of:
“How much surveillance ‘kit’ do we need to buy in order to stay out of trouble?”
When you get this question there is a real temptation to start off with the litany of fines and penalties that have recently been issued: “This company got fined millions of euros,” “That company had their offices raided.” But at the end of the day a CFO just wants to know the cost.
Pick any number. It could be a million euro per year; could be a hundred thousand. Whatever the number, this question is coming next.
“Are you telling me we need to spend “X” per year so that two people can effectively do their jobs?”
Yep, that’s exactly what is being suggested. This is the very question that causes surveillance programs to start skidding sideways. Many linger here for years. No matter how you shake it, surveillance programs are expensive on a per employee basis. Don’t blame the CFO. It’s part of their job to look at things from a per-employee perspective. It’s just that when it comes to surveillance you commonly have very few people working with a lot of “kit” to avoid very big penalties. On the other hand, good luck selling them on a big number. That my friends is the surveillance Catch-22.
“Fine, fine but seriously…how much?”
Hey, it’s not like we are unbiased here. We are a vendor that sells surveillance and all the plumbing to get all surveillance data. A lot of new vendors coming out of the woodwork, giddy about all the fines. “Watch out!” “Don’t get caught!” I know. Fear tactics usually lead to the most awful marketing narratives ever created.
Nonetheless, here’s the truth.
There is no formula for how much. Any formula you devise is going to come up irrational. Say the average fine is $100,000. But your risk is of a violation is 10%. $10K per year is not going to get you far.
My point is this. Surveillance is not cheap and it does not make economic sense if you only think of it as insurance.
Instead, consider how that kit can not only protect the franchise, but also help people in compliance, risk, operations, and even trading, get more insights. What’s the point of collecting all that data to only divine a small window of information? This is a sorely absent spot in the Venn diagram of functions and capabilities for most trading firms; compliance meet technology.
Make friends, work together, and focus on kit that sharpens trading acumen. As a function, compliance will then move from a label of “internal police” to champions of internal data.