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2022 Compliance and Surveillance Predictions: The Latest Update

Rob Mason

At the start of the year, we shared some predictions around what the year ahead would deliver for compliance teams.

As we pass the midpoint of the year, it’s a great time to reflect on how close (or not!) those predictions have been to reality—and what significant topics have developed over the last six months. More specifically, within the market abuse area, we continue to see a strong emphasis placed on appropriate oversight and surveillance, along with a steady flow of sanctions by regulators globally.

Read on for a closer look at these and other developing trends for the year.

1. Bigger, Billion-Dollar Fines

Fines still keep coming with regularity—and large dollar values.

Notably, one astronomical fine of over $1.5 billion was imposed on a large commodity trading and mining company with pervasive bribery, corruption, and market manipulation behaviors. The severity of this action casts further shadows over that particular sector in the market.

Also noteworthy from a communications monitoring perspective are a series of now-infamous WhatsApp messages between a group of 12 English traders, which allegedly show that they pushed the price of WTI crude oil futures lower and, in doing so, yielded material profits. This will be one to watch going forward.

Furthermore, rather ironically, a recent case involves one of the largest accountancy firms, who have admitted that a number of their employees cheated on the ethics component of exams and training. It has resulted in a large $100 million fine and is another area where communication monitoring could have successfully identified the risk.

A number of fraud, bribery, and corruption cases have also featured in the first half of the year—alongside traditional market abuse and insider dealing issues. Pharma firms in particular have featured more prominently in this space than previously.

On the regulatory side, the UK’s Financial Conduct Authority (FCA) has been criticized for delivering fewer enforcement outcomes in the market abuse space as their problems with staff pay and rations continue to occupy headlines. Other regulators, meanwhile, have kept busy. We’ve especially noted how many successful outcomes the Australian Securities and Investments Commission (ASIC) is now delivering.

2. Social Trading

This subject dominated media coverage for an alleged “abusive, collusive squeeze” of short sellers last year, which also caused regulators and some firms some headaches in overseeing the associated risks. As market conditions have changed, this issue has quieted down significantly—as have the volumes of transactions some of these platforms are generating.

Since lockdowns have subsided, entertainment and trading doesn’t have to only be generated in the house; therefore, GameStop and those like it have been relegated to second tier, at least for now. This doesn’t mean that communication surveillance platforms aren’t working to equip their platforms to find this type of risk, however, so stay tuned.

3. ESG

A first for the space, the Securities and Exchange Commission (SEC) successfully prosecuted a case over alleged environmental, social, and governance (ESG) disclosure failures. They imposed a $1.5 million fine in the matter, citing misstatements and omissions around assessing and managing climate-related product risks. The example sends a clear message that ESG issues should be on firms’ list of compliance priorities.

In fact, many of the most prominent regulators have committed more material resources to supervising this area. Firm transitions to the ESG agenda and a steady stream of related content and discussion have been apparent. This will likely continue to be the case—and clearer requirements, including those for reporting, are starting to emerge.

4. Crypto

The seemingly unstoppable crypto machine continues to gather momentum. With high records of inflation and a looming recession, a recent study by Motley Fool found that 46.5 million Americans who have never invested in crypto plan to within the next year. Despite some generally harsh commentary from regulatory figures, as well as some further cases of unregistered offerings and financial crime and fraud concerns, key operators in this space continue to strive for regulatory acknowledgement in order to occupy a similar position as mainstream regulated investment asset classes.

This will develop further as the market evolves. As of now, the Middle East (specifically Dubai and Abu Dhabi) appear to be endeavoring to lead progress in this space.

5. Work-from-Anywhere Challenges Are Here To Stay

While it may well continue to be in the news, the immediate effect COVID-19 has had on all aspects of our lives has somewhat subsided in most geographic areas. However, at least for the short term, it seems that hybrid and remote working arrangements will stay with us.

There remain some surveillance challenges to this, given the necessary oversight of more recently added communications channels, as well as the inevitable challenges of future iterations of video and other chat platforms.

Regulations regarding personal devices being used for business purposes, and the recordkeeping and surveillance implications, still remain largely unresolved. Some more advanced technology solutions—as well as policy enhancements—are now being deployed to help manage this challenge, but there remain some obstacles to finding satisfactory, strategic, and sustainable outcomes.

Increasing discussions regarding the monitoring of general employee conduct have also appeared, with some firms considering leveraging communications monitoring to cover a broader population of in-scope employees to help oversee their behavior and conduct.

On the plus side, it has also been noted that utilization of the cloud is now becoming a generally accepted “new normal.” This will help simplify any larger record-keeping requirements and their consequences.

In summary, 2022 has turned out to be right as we predicted—so far! Market abuse, employee conduct, ESG, and crypto will continue to require scrutiny and proactive monitoring to avoid obstacles—the predictable and unpredictable.

2022 Relativity Fest London Keynote

Rob Mason is the global regulatory intelligence lead at Relativity Trace.