Greenwich Associates: Trust Impacts Investor Trading

4 Apr, 2017

The world’s major banks are adopting sophisticated, cloud-based technology to monitor the actions of employees and guard against future scandals.

Bank reputations have taken a beating from the global financial crisis, scandals around LIBOR and FX, and before any of those, a series of “rogue-trader” incidents that caused billions of dollars in losses. Although the reputational damage from these events has lessened in recent years, new research from Greenwich Associates shows that 70% of institutional investors say their level of trust in their brokers impacts how they trade.

In a new report, Electronifying Relationships: Managing Institutional and Reputation Risk, Greenwich Associates examines the new technologies banks are using to prevent future scandal. The report concludes that as a majority of banks’ client relationships have evolved into combination of electronic and phone-based interactions, effectively managing these “electronified” relationships is key to both winning trading business and managing business and reputational risk.

Bank compliance departments can’t listen to employees’ every call, read every email and examine every instant message. “But cloud-based voice technology alongside analytics can be used to capture enhanced metadata around calls, transcribe every call and apply artificial intelligence to find patterns of behavior that warrant deeper examination before anything ends up on the cover of the Wall Street Journal,” says Kevin McPartland, Head of Research in Greenwich Associates Market Structure and Technology Practice and author of the new report.

The short-term costs of moving away from legacy technology to the latest and greatest can be high, but the long-term benefits and reduced operating costs of cloud-based solutions more than make up the difference. The electronified relationship will not only help with driving revenue through better understanding of each client, but also with know your customer (KYC), portfolio compliance, trade-level compliance, fiduciary rules, and more.

It is truly impossible for the head of a major trading desk to know everything that everyone on the desk is doing, which is and should be unnerving to them—even when they have full trust in their team. An electronic eye capable of watching and learning every minute of every day is a required hedge against both unintentional and intentional misdeeds—something that should comfort everyone involved.

“Surveillance technology has moved from necessary evil to critical risk management tool,” concludes Kevin McPartland.