Regulatory

The Surveillance Catch-22

The Data and Surveillance Conversation With Your CFO

There’s always so much “market cop” action in financial services. Here. Here. Here. Etc. The road signs are clear: we are moving out of a nascent compliance market into one reaching maturity.

Many internal surveillance conversations have unfolded over the last few years. At some point, compliance ends up in the CFO’s office facing a simple question:

“How much surveillance ‘kit’ do we need to buy in order to stay out of trouble?”

When compliance gets 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 large 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?”

Unfortunately, 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 of a violation is 10%. $10K per year is not going to get you far.

The point: surveillance is not cheap and it does not make economic sense if you think of it as only insurance.

(Hey, it’s not like we’re unbiased here. We are a vendor that sells surveillance and all the plumbing to compile the data.) 

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; hello, compliance, meet technology.

The advice: make friends, work together, and focus on “kit” that sharpens trading acumen. As a function, compliance can then move from a label of “internal police” to “data champions.”