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Protecting banks' reputation and profitability through surveillance

 “Big picture” surveillance can help banks detect breaches sooner, lower costs and reduce regulatory, reputational and operational risk.

In the finance industry, surveillance is an activity that is driven primarily by regulation. The data generated by surveillance activities is typically confined within specific business units or trading desks, and is only available on a “need to know” basis.

Surveillance is often designed to identify specific actions taken by individuals within the organization. The thresholds for flagging such actions tend to be similar for all groups and business areas, based on an analysis of structured data using clearly defined algorithms. A reactive process, this model uses tools that identify past patterns to determine if a breach has occurred. As banks’ recent experience indicates, this approach leaves significant gaps in coverage.

For banks to gain the full potential from their surveillance activities, they need to take a more proactive approach that includes three key elements:

  1. A commitment from top management expressed clearly as a set of working principles for team leaders and members.

  2. Measured and focused investment in the right technology and tools.

  3. The right culture, developed and fostered throughout the organization.

To create an effective and integrated surveillance framework, banks need to:

  • Create an accountable risk governance structure for surveillance activities—with an executive committee representing members of involved business units—responsible for reviewing highest priority issues and supervising ongoing surveillance improvement.

  • Enhance preventive risk identification methods.

  • Define relevant data collection and data sharing requirements for different teams.

  • Integrate data across functions for a more comprehensive view and more effective, aggregated risk analysis.

  • Create a centralized tracking and reporting center of excellence, using industry leading practices, technology and coordination across functions.

  • Create normal profiles of different trading businesses, trading desks and individual traders based on historical analysis.

  • Study deviations, alerts and issues related to these normal profiles.

  • Report relevant findings to the appropriate stakeholders.

Banks committed to improving surveillance through an integrated, big picture approach should see quantitative improvements in a number of key metrics:

  • More breaches detected, with a reduced number of false positives.

  • Lower costs associated with each incident.

  • Faster detection leading to fewer incidents escalating.

  • Over time, a reduction in breaches as employees, counterparties and others realize the extent of the bank’s surveillance capabilities.

While effective surveillance requires investment in both technology and human resources, the returns in terms of risk mitigation and enhanced reputation can be significant. Banks should look at their current “need to know” surveillance practices with these potential benefits in mind. Learn how banks can improve their surveillance activities in Getting surveillance right: Protecting bank's reputation and profitability.

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