Blog Series: Fighting Market Abuse in the Age of AI: Trends, Threats, and Technology
AI is transforming financial services, enhancing market abuse detection, compliance and operational efficiency.
- According to a 2024 FCA survey, 75% of UK financial services firms currently use AI, up from 58% two years earlier.
- A 2024 KPMG survey also found that 68% of firms consider AI in risk management and compliance a top priority.
- Additionally, approximately 31% of firms are using or planning to implement AI for communications surveillance within the next year.
Regulators are also embracing AI. Germany’s BaFin uses AI for alerts and market analysis, Italy’s Consob can detect insider trading in three seconds versus 20 minutes manually, and agencies including the SEC, FINRA, CFTC, FinCEN and FCA encourage AI integration in surveillance programs.
Mark Branson, President of BaFin, publicly credited AI with significantly improving market abuse detection, noting in a 2025 conference that “the likelihood of being caught in market abuse trading has never been so high”—thanks to AI-enhanced alert systems.
AI Outperforms Legacy Systems
AI addresses a number of critical limitations of legacy surveillance:
1. Data Volume & Fragmentation
Modern markets generate vast, fragmented, high-velocity data. Legacy systems, often siloed, cannot correlate trade data, market news, behavioral data and communications. AI analyzes multi-source streams in real time, detecting subtle abuse patterns invisible to humans.
2. False Positives
Static rule-based alerts overwhelm compliance teams. AI uses NLP, anomaly detection and ML to prioritize true risks. Contextual analysis identifies manipulation in coded language and distinguishes casual communication from coordinated schemes.
3. Complex/Novel Manipulation Detection
AI identifies sophisticated schemes such as cross-market spoofing, layering and insider trading using coded communications. It links trades across instruments and markets, spotting manipulations that legacy systems miss.
4. Investigative Efficiency
AI streamlines investigations by automating:
- Alert scoring and prioritization
- Evidence collation
- Alert summarization and explanation
- Narrative generation for regulatory reporting
Generative AI can summarize vast chat logs, highlight suspicious communications, and assist compliance analysts without removing human oversight. Automated workflows reduce time spent on benign alerts and improve focus on true positives.
AI Techniques in Use
- NLP & Large Language Models (LLMs): Analyze unstructured communications, detect sentiment shifts and uncover manipulation across languages and platforms.
- Anomaly Detection: Flags unusual trade patterns, communications spikes or atypical sequences.
- Machine Learning: Continuously adapts to emerging abuse tactics, keeping pace with evolving market strategies.
Examples of AI-driven detection include:
- Rapid buy/sell sequences to simulate market demand
- Coordinated manipulative trading following influencer posts
- Internal chat patterns linked to unusual trading volumes
Coupled with holistic surveillance, AI uncovers abuse schemes that would otherwise remain invisible.
AI’s Future in Market Abuse
Artificial intelligence is poised to evolve from detecting known patterns to proactively anticipating emerging threats. Future capabilities include:
- Correlating trades and communications across markets and geographies
- Recommendation learning and automated reporting
- Federated learning for updating compliance policies and procedures
- Dynamic anomaly detection in behavioral surveillance
These evolving capabilities will enable firms to anticipate manipulation before it escalates, ensuring market integrity as trading becomes increasingly automated and complex.
Conclusion
Across all four trends we’ve explored in this comprehensive blog series – regulatory crackdowns, off-channel communications, crypto adoption and AI-enhanced surveillance – the message is clear: market abuse is evolving, global and increasingly sophisticated.
Firms must adopt integrated, holistic surveillance strategies combining advanced analytics, multi-channel monitoring and a culture of compliance. Those that do will protect investors, maintain market integrity and stay ahead of regulatory scrutiny.
Explore More on This Topic – Read the Complete Blog Series
Trend #1: Rising Regulatory Scrutiny
Trend #2: The Off-Channel Communications Surge
Trend #3: Crypto’s Meteoric Rise and Mainstream Adoption