The evolving compliance industry: Interview with Joe Schifano, Global Head of Regulatory Affairs, Eventus
By Joy Dumasia
Eventus Systems is a leading global provider of multi-asset class trade surveillance and market risk solutions. The powerful, award-winning Validus platform is easy to deploy, customize and operate across equities, options, futures, foreign exchange (FX), fixed income and digital asset markets.
Validus is proven in the most complex, high-volume and real-time environments of tier-1 banks, broker-dealers, futures commission merchants (FCMs), proprietary trading groups, market centres, buy-side institutions and energy/commodity trading firms. Their rapidly growing client base relies on Validus and the responsive support and product development teams to overcome its most pressing regulatory challenges.
IBS Intelligence sat down with Joe Schifano, Global Head of Regulatory Affairs at Eventus Systems, to discuss how compliance technology is evolving and what things are ahead.
Could you give us an overview of Eventus’ service offerings and the Validus Platform?
Eventus is the leading global provider of multi-asset class trade surveillance and risk monitoring solutions. The firm also provides anti-money laundering (AML), transaction monitoring, and monitoring. Validus is a comprehensive, multi-asset class platform for monitoring, tracking and analyzing trade flows and financial risk to maximize the efficiency of clients’ regulatory operations.
How is compliance technology evolving, and what things are ahead in compliance tech?
Compliance departments are continually under pressure to maximize their human and financial resources. In digital assets, compliance personnel are increasingly tasked with advising and surveilling across more compliance verticals than their peers.
Relative to efficiency, clients update their tools by looking to vendors that provide automation capabilities, including machine learning. Today’s legacy method used by surveillance platforms is parameter-based surveillance, where parameters and thresholds control the volume of alerts promoted for review. This leads to arbitrary over/under calibration tendencies that do not improve alert quality and leaves surveillance analysts with either too many false positives or the risk of missing early warning signs of an issue. To solve this problem, Validus introduces Automation. Automation is an advanced method for analyzing data and producing higher-quality alerts. The result is an improved understanding of the potentially suspicious activity that aids surveillance officers in better utilizing their time, executing in-depth analysis and catching the early warning signs of a potential problem.
In a more holistic view of compliance risk, clients in the digital asset market increasingly want to aggregate data from their Best-in-Breed KYC, AML, and Trade Surveillance tools. Therefore, they seek experienced surveillance and technology vendors who collaborate well with their staff and bring an in-depth understanding of regulatory requirements, no matter the asset class.
Cross-Market surveillance looks at identical fungible instruments traded in multiple venues. This is critical in jurisdictions like the U.S. for equities and is increasingly discussed in regulatory circles relating to digital assets. For example, a market participant may surveil tokens, securities and issuers across digital asset venues. Validus natively supports cross-market surveillance.
Cross-Product (asset) surveillance looks at two or more correlated instruments related by the same issuer, underlying or series, etc. Cross-product surveillance is increasingly coming into focus for multiple jurisdictions and asset classes. For example, in digital assets, clients are asking about surveillance for potential market manipulation by participants trading in both spot and futures markets. And Validus is capable of conducting such surveillance.
What are your thoughts about the revolution in the current state of digital asset regulations?
Global regulators continue to grapple with this quickly evolving asset class that presents financial and technological innovations. The far-reaching impact of these innovations certainly requires considerable thought, and it is no surprise to see diverse approaches by regulators across global jurisdictions.
One thing is exceedingly clear, and this is a common thread globally. Regulators are serious about rooting our fraud and market manipulation in all asset classes. They are serious about applying the well-worn principles of AML/CFT frameworks in this new eco-system.
We are not surprised to see headlines like this “U.S. SEC’s enforcement cop says crypto company amnesty is not on the table”, which appeared in Reuters. This is a critical concept in every jurisdiction globally. While some see this as “regulation by enforcement,” we counsel our clients to use the battle-tested lessons of mature traditional compliance frameworks and apply them in their digital asset businesses.
Regulatory uncertainty should not mean less investment in compliance; it should incentivize future-proofing your business. We believe proper surveillance tools are a proactive investment that boosts reputation with regulators and mitigates the high cost of latent regulatory enforcement. Safe, trusted and compliant business encourages institutional investment and attracts institutional customers.
What are the best practices for creating surveillance systems for trading assets, especially when digital assets are ascendant?
In addition to having the resolve to invest in a proper compliance framework, best practices, specifically in trade surveillance, use next-generation technology and apply well-known lessons from traditional finance. Some of these best practices in practice and technology include:
- Use a high-performance cloud platform to monitor activity on and off-chain.
- Ensure efficiency in your surveillance framework through robotic process automation.
- Provide tools to surveillance analysts that permit for a rapid and flexible response to quickly evolving compliance needs.
- Employ an API driven framework that provides interoperability and extensibility to future proof against a shifting landscape.
- Pay close attention to early enforcement cases to guide your compliance framework.
- Look to the lessons of past nascent financial innovations that ultimately came under the guise of regulatory frameworks and that were, always from the outset, subject to fraud and market manipulation regulatory scrutiny.
What are the leading challenges facing cross-asset market surveillance?
Data is key here, and accessing reliable sources of order lifecycle, market data and reference data to link and analyze behaviour across disparate markets effectively is the challenge. This is particularly true for less liquid or more OTC traded markets, e.g. fixed income or markets with dynamic instrument types, e.g. user-defined spreads. The other point would be the volumes of data needed to be processed in a timeline and the need for automations to ensure you don’t receive many false positives.
What is in the pipeline for 2022?
Building a single pane of glass for financial risk across digital assets, leveraging integrations with other third party best of breed solutions, e.g. Project Ten, to provide a holistic view of trade surveillance, risk, KYC and AML. Cross-product surveillance is an important focus area and ensures we have all relevant data sources and surveillance procedures to enable this effectively and practically.
Continued investment in new ways to evaluate and investigate actionable alerts through new visualizations and insights such as order book replay and behavioural statistics will help identify shifts or anomalies in patterns over extended periods based on a particular trader, account or client. Building more programmatic access to data on the platform by expanding our API offering to provide further integration points and extend Validus functionality into a client’s wider trading and risk workflows.
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