Communication on the trading floor is changing.
Walk around a modern dealing room and you may be struck by how quiet it is. Dealer-boards are still important, and voice is considered a primary channel by most users, but the highest volume of communications takes place using chat functionality. Systems include industry-focused eComms on platforms like Bloomberg, Symphony, Refinitiv and ICE Chat, and also less targeted UC systems like Teams, WebEx and Zoom.
The ambient noise levels may be set to increase though, a big concern for Compliance teams, and the technology divisions who support them, is the emergence of video communications for all bank employees and the implication of archiving media for regulated users that requires up to 14 times more storage space than a similar length audio call.
Complexity Drives Change
Trading floor staff use more communications systems than ever before and while a sell-side organization may try to limit the number of authorized systems in use, if a client wants to use WebEx, Zoom or BlueJeans, realistically, that requirement needs to be facilitated. As well as new systems, there are new modalities. To the user, it is intuitive to share screens and files or use whiteboards, but MiFID II 16(7) is clear on the requirement for all electronic communications to be captured and archived and this is not always straightforward.
It can be frustrating for Financial Services Compliance professionals and consultancies like ours that not all communications platforms meet the compliance capture standards of the industry. However, for the likes of Microsoft, who are focused on dominating the corporate UC sector, it is understandable. At around 325,000 people, based on an estimate of Bloomberg terminals in operation globally, the community of regulated users at the world’s financial trading organizations is a minor niche within the fast growing daily Teams user base of 270 million.
Video, Social Media and Whatever Comes Next…
Investment banks are preparing for the capture of video. In fact, some have already implemented it, which means the adoption curve is likely to steepen rapidly. The costs are prohibitive for in-house storage so most organisations will select elastic storage in the Cloud. In Corporate and Investment Banking, the primary focus for video capture is MS Teams, but since the video conferencing revolution triggered by the pandemic, video communications are popping up everywhere. Bloomberg and Symphony now have video and it’s a feature of WhatsApp, which has already featured in 2022’s regulatory headlines. LinkedIn video meetings are another emerging area of concern for Compliance departments. As new platforms emerge and existing platforms add modalities, Compliance departments need to plan accordingly with policy, governance and technology.
In terms of supervision and trade reconstruction, video is not the most useful channel. Compliance officers are more likely to use video to supplement information about conversations that have already been surveilled or analysed using audio media and text data. Screen-share, which is considered a separate modality, may be the richest form of visual media for compliance. Despite not being the primary focus of compliance, in combination, the use of these new channels does pose a risk.
Increased Risk and Short-Term Solutions
At the strategic level, new architecture needs to facilitate productive communication, controlled by effective supervision and compliance, and protected by suitable security. However, some risks are deemed too great in the short term. As well as issues surrounding the capture and monitoring of communications, a survey by Theta Lake found the following top 3 most concerning features relating to data security:
- Transfer of files via chat (52%)
- The ability to share links in chat or on screen (41%)
- The risks of screenshare (38%)
The potential risk presented by compliance recording failures, screenshots and content being recorded on mobile phones is such a worry that many banks have simply banned regulated users from some platforms, deactivated cameras, switched off functionality like whiteboards, screen-share and file-share, and enforced dial-in to online meetings on recorded lines. These leads to tensions between front office and support functions as businesses feel they are being hindered.
Strategic Context
The retention time for captured data under MiFID II is 5 years with an option to extend to 7. However, legal hold requirements can see retention extend to decades. Most records will never be played back and although some legacy records are checked, the majority of replay happens early on. In any situation, the search and replay process needs to be as quick and intuitive as possible for Compliance and Legal teams.
At a technical level, uncompressed media can be used following capture for the best quality playback and for accurate transcription. After a brief period, to be defined by the trading company, the media can be compressed to lower quality and migrated to warm or cold storage, thus saving significant expense. Filtering needs to take place, especially where legal hold is concerned, to ensure that only required records are held beyond any retention threshold. Recordings of unregulated users should be deleted much earlier within the requirements of regulatory frameworks.
With regulated firms forced to use more communications platforms than they would prefer, the complexity continues to grow. Flexible architecture is essential to enable compliant capture across all systems and modalities while retaining the option to switch to a system’s native capture engine if one becomes available. Captured data should be saved in generic formats like .wav or .mp4 to allow the trading company to retain control of its data and pass it via open standards integration to archiving, replay and surveillance systems.
The growing number of platforms and the cost implications of video storage means that the design and selection of the archiving provision becomes more strategically significant than the capture for most channels. An elastic archiving solution that supports the application of retention policy, including the ability to purge records or migrate them to warm or cold storage after defined periods, becomes very attractive. It is also important that legacy records can be normalised and ingested.
The search and replay function also needs to keep pace with the new multi-channel environment. Compliance and Legal staff need to be able to search records effectively and reconstruct conversations across multiple channels in a single interface. For reasons of regulatory compliance as well as operational efficiency, searching and replaying records should not be a job for IT staff.
Compliance Technology Strategy
As already discussed, an optimal architecture solution will allow the swift addition of new platforms and modalities into a compliant operating framework. Archiving needs to be smart, supervision near to real-time, and search and replay intuitive and efficient. As most communication now takes place on cloud solutions, it makes even more sense for capture, archive and replay tools to be there too. Open standards and easy integration will be important to maintain flexibility.
While a single archive should be able to provide data to surveillance and replay tools, a single capture tool is less important and although every bank’s situation is different, we would prioritise the decoupling of the compliance stack. This will help to avoid the risk of lock-in to solutions that find themselves with gaps in capture capability, become expensive compared to new products, can be replaced by proprietary systems, or fall behind the curve in some aspect of functionality – tiered storage being a current example.
Reconciliation
With so many channels to handle, it is hard to demonstrate the comprehensive application of compliant policy. A new and important trend is for the application of reconciliation engines that perform data lineage analysis using metadata to verify that defined rules have been applied correctly, that data has been received by the necessary databases and archives, and to trigger alarms in response to any variance. Products exist on the market to perform this role although some larger banks with development capabilities have designed proprietary systems. Taking a data management focus with a clear presentation of information will become invaluable in meeting the requirements of audit.
Conclusion
Every institution is different with its own legacy technology and components of a future infrastructure in place. This blog is a reflection of trends that we are witnessing and best practice that is emerging. The accessibility of the cloud means that interesting new solutions can gain a foothold quickly and a flexible approach will be required to take advantage. For now, we are right at the start of video usage for regulated users and it will be interesting to see how the emergence of new video modalities will affect communications behaviour.
