Financial services and trading involve many moving parts that must be perfectly aligned to succeed. As trading volumes grow and become increasingly complex, the need to monitor every transaction has never been greater or more difficult. Not only do wealth management firms and advisors have to stay on top of data to provide excellent service and results for their clients, but they also have to ensure they stay in compliance.
Automated trade surveillance adds an extra set of eyes to alert advisors to necessary action items and highlight any areas of concern and suspicious activity before they grow into larger — and potentially more costly — compliance issues. Risk management is a moving target, which means time is of the essence and an integrated surveillance system is essential.
Trade surveillance is vital to protecting firms and their clients from unethical trading and fraud. An integrated trade surveillance system monitors a wide variety of data and conditions that can lead to hundreds of alerts a day but focuses on these seven key alerts.
1. Trades
Trading is heavily regulated, but it can be difficult to find patterns in unethical or suspicious trading activity without an automated data program. Trade surveillance tracks when trades occur and keeps an organized audit trail to help advisors stay on top of the process. Alerts can also flag any complications, abnormalities or suspicious trading patterns.
2. Licenses and Appointments
Brokers and financial professionals are required to have the necessary licenses and carrier appointments. Tracking these items and prompting timely renewals allows for trading and compensation processes to proceed smoothly. Financial institutions must proactively ensure their producers are properly licensed and contracted to avoid compliance issues and Not in Good Order (NIGO) exceptions.
3. Data Changes
A key aspect of compliance is ensuring customer data is updated and remains in line with regulations and trading needs. An integrated trade surveillance system can alert you if data has been changed, such as the amount or rate of the trade, or if data needs to be updated to be consistent across all accounts.
Data changes can also relate to suitability and track if the account or trades meet the client’s risk tolerance and investment goals, especially as their data or life stages change.
4. Addresses
Advisors will be alerted if there is an address issue with a trade, including if the address is missing, incomplete, or not consistent across all forms. Scanning addresses to identify address matches to advisor locations or home addresses, or the frequent reuse of an address allow financial firms to spot potential fraud and abuse from insiders.
5. Orders
A comprehensive trade surveillance system pays close attention to an advisor’s order book to ensure every order is in compliance. It keeps complicated orders organized and ensures buyers and sellers meet regulations and have matching criteria.
6. Accounts
Account activity is monitored to identify account exceptions such as large account balance changes, high and low activity accounts, excessive turnover rates and cost to equity exceptions. These alerts can be beneficial for advisors to check in with clients and ensure everything is as it should be and that no fraud has occurred.
7. Sales
A trade surveillance system will likely flag an account with excessive sales or more activity than normal. Advisors can also get alerts if the sales happen before big news or market changes are announced, which could indicate insider trading. Information in the comprehensive contact, account and transaction data base can also be used to improve customer service by notifying producers of life events (e.g. birthdays, anniversaries), monitoring excessive amounts of cash relative to investment objectives, and understanding household structures.
Trading can be a lucrative opportunity for advisors, firms, and clients, but it often comes with high risk and heavy regulations. An automated trade surveillance system is the best way to stay on top of compliance issues while providing excellent service and competitive trades. Less time manually sorting through data and potential issues means more time making deals and growing your business.
