The growing importance of compliance and surveillance in emerging and regional markets

This article was written by Nader Shwayhat, Global Head of Compliance, Analytics, and Directory Solutions, and Christian Benson, Market Structure & Risk Strategist, Government Affairs at Bloomberg.

As global regulatory authorities look to re-position their market structures and improve capital formation, there is a growing focus on improving investor confidence and ensuring that the regulatory environment is appropriately set up for this next phase of market evolution.      

Bloomberg’s engagement across its ​global customer base along with a range of regulatory bodies has revealed that effective compliance and surveillance practices are increasingly central to market development. From the Middle East to Latin America, India to Africa, growing technological industry capabilities are transforming the role of compliance practices and helping to usher in the next phase of best practices for global financial markets.   

Regulatory trends 

In the global competition for capital, many emerging markets are creating institutional structures around market abuse to demonstrate market integrity and support foreign investment.  

Two prime examples of this approach come from: 

• South Africa, where its financial institutions and regulatory bodies are building the Market Surveillance Code of ​​Conduct.

• Qatar, where Qatar, where there are several initiatives underway to improve surveillance practices. More broadly, there is growing awareness that greater technological industry capability presents an opportunity for markets to become more resilient, data-driven, and compliant.   

To help market participants keep up to speed, global regulators are increasingly issuing practical guidance that provides real-world examples to firms while also establishing productive industry dialogues between market ​participants​ and technology vendors. This can be seen with the Australian Securities and Investment Commission’s guidance encouraging financial firms to strengthen their business communication surveillance and the efforts of the UK Financial Conduct Authority to provide regular communication through its ‘Market Watch’ newsletter and its recent initiatives to foster a conversation with​ the​ industry on AI.  

Collaboration with technology partners

This growing collaboration and dialogue between regulators, market participants, and technology providers is particularly pronounced within growth markets looking to emulate best practice and attract international capital.

By drawing on the insights gained from established market frameworks and technology vendors, regional regulators are focused on ensuring that their local compliance frameworks are appropriately robust as well as flexible. These partnerships allow regulators to ensure their systems can detect potential market abuses and meet the growing demands of international institutional investors. 

Regional industry perspective

From an industry perspective, many regional firms struggle to understand the scope of their local regulations and compliance requirements and are seeking more clarity and guidance accordingly. In response, Bloomberg’s  Government and Regulatory Affairs team has provided a range of local regulators with industry platforms and forums to share information and observations with financial compliance professionals operating within the local market.   

Regional clients fall on a spectrum of compliance sensitivity. The more established, conservative, and global-facing firms tend to model their compliance regimes on counterparts in more established financial centers to demonstrate a strong and familiar culture of compliance to their clients. Smaller, more regionally focused firms tend to be not as compliance-sensitive or are otherwise seeking “check the box” solutions. 

In either case, most of these firms’ primary concern is the ability to capture and search records accurately. Active monitoring and surveillance are, in many cases, a relatively novel concept for these firms, and they are seeking education on the basics of communication, voice, and trade surveillance, heavily relying on their technology vendors for guidance. 

Transformative shift within compliance and surveillance

As these regional markets develop and regional regulators become more assertive and alert, local market participants will benefit considerably from high-touch expertise to support their transition to more managed capabilities. These clients are well-positioned to be served by holistic solutions that can grow and evolve as their compliance needs evolve.  

The role of compliance and surveillance in market evolution will only grow in importance as regional markets continue to develop. Regulators are taking a more assertive role, while local firms are eager for guidance and support in meeting new requirements. Collaboration between regulators, technology vendors, and market participants will be key to ensuring these markets remain transparent, competitive, and attractive to global investors. 

Compliance technology systems such as Bloomberg Vault allow market participants to comply with new regulatory requirements with a data-driven approach to capture their records and monitor employee activity with respect to market abuse and conduct violations. In that same vein, regulators are increasing investment in their own infrastructure to monitor the growing complexity of their regional marketplace and ensure effective oversight as markets develop. 

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