Reading the right signals: Surveillance and Investigations

Surveillance plus Investigations equals great teamwork

Effective feedback loops between surveillance and investigations can help banks boost risk-detection and significantly cut costs. But the right process, the right technology – and the right culture – all need to be in place

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bales of hay - Surveillance and investigations make for a great team if used correctly

Effective surveillance is about looking for multiple signals across an entire bank - trying to detect issues that may or may not have occurred. Yet there is little feedback about the effectiveness of different surveillance methods, due to the broad scope and low number of issues involved. 

For a bank’s trader surveillance teams, identifying conduct issues can feel like looking for a needle in a haystack. In this case, the haystack is the billions of trades, emails, chat messages and phone calls – occurring each second throughout the day – all of which need to be monitored. 

Following false trails

For a large bank, the cost of searching for the needles – misconduct, market abuse, unauthorised trading – can easily run into millions of pounds per year. Much of this cost comes from searching through the alerts existing surveillance systems generate, the vast majority of which are false positives. 

As a result, banks often find themselves wading through the hay, to find little evidence at high cost. 

Investigations, on the other hand, work to a much more focused brief. They look for specific signals at specific times within a narrow group of individuals. As a result, they are rapidly able to test and re-test different risk detection methods and become effective at looking for signals. The investigators’ insight is, therefore, of great value in the whole process. 

But what if it were possible to shrink the haystack? Creating feedback loops from investigations improves a bank’s ability to detect risks – delivering better surveillance at lower cost, by leveraging the bank’s existing knowledge. 

Stop working in silos

The problem for most banks, however, is that the information acquired through investigations doesn’t usually get fed back into surveillance. 

Rob Weston, Managing Director of Trading Risk Solutions at KPMG, cites one example in which an investigation team found market abuse in a bank, where the traders involved used code words. “Typically, those words wouldn’t feed back into surveillance straightaway, due to the separation of the teams,” he says. “When the investigators find any new behaviours, on the other hand, they can be passed to the surveillance team to help improve their surveillance models.

”That allows surveillance to develop new methods and algorithms to enhance the detection of risk. “Surveillance could also pass capability onto investigations in a constant feedback loop,” Weston says.

“When that doesn’t happen, it’s often because data resides in silos – and people work in different units where the business is heavily segmented,” explains Mark Cordy, KPMG in the UK Director of Risk Consulting.

Joining forces to cut costs

“The separate teams - investigations and surveillance - usually have different technology for a very similar process – the collection, searching and review of trade and communications data,” adds Weston. Data such as emails and voice recordings are stored in one place, then moved to a surveillance platform, then moved to an investigations platform. “There’s a cost at every stage, both in terms of technology acquisition and operational running costs.” 

Improved use of technology will deliver cost efficiencies and operational savings through the alignment of data and people. “Banks will be able to realise direct cost-savings,” says Cordy. “But the other element – which is harder to quantify – is cost-avoidance.”

KPMG has worked with clients to deliver these benefits, helping surveillance and investigations work off the same data, while using different lenses. Some clients have saved hundreds of thousands of pounds, using a shared platform and over its lifetime, cost savings could end up in the millions. 

When the platforms are better aligned and teams better able to share data – while maintaining the required levels of separation and privacy – there will also be more effective feedback loops. “We have increased the ability to detect risks between 10 and 100-fold by using more effective feedback loops,” says Cordy.  In other words, bringing together investigations and surveillance could hardly be more important. 

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