Trading Floors, FIs Eye Record-Keeping Contingencies Amid COVID-19 Crisis

Chris Wooten, Executive Vice President, Surveillance Group
Trading Floors, FIs Eye Record-Keeping Contingencies Amid COVID-19 Crisis

Technology and consulting firms that address financial crime, trading floor operations and related risk issues were inundated this week with requests from financial institutions with respect to how we would support them considering the potentially expanding impact of COVID-19. Issues related to record-keeping contingencies have appeared at the forefront of the concerns expressed by leading financial institutions (FIs), particularly with respect to trading floor operations.

We have found that COVID-19-related activity is currently hitting financial institutions with considerable impact. We saw this play out in London recently when HSBC emptied segments of its Canary Wharf facility when one of its research employees tested positive for COVID-19, leading to remediation of the facility and risk assessment connected to putting employees back into the building.

More than just the mandatory regulatory “recording” issues at play during this crisis, the total issue is around record keeping of financial transactions and the continuing necessity to be vigilant for risk while employees work outside company premise where they might be more likely to engage in risky behavior. FIs, along with their technology vendors, are considering all these issues in a manner that both protects the integrity of the markets and provides transparency by bringing the same controls to the home of the employee as they have in the office. These measures can help protect the financial markets in this time of great uncertainty.

The National Futures Association (NFA), the Commodity Futures Trading Commission (CFTC), as well as the SEC in the United States, and both the Monetary Authority of Singapore (MAS) and the Financial Conduct Authority (FCA), have been issuing regular communications to its members concerning the operational impact that the virus could have with respect to staying compliant with trading and other financial regulations, demonstrating a timely approach to their support and oversight of critical issues.

One key fact to remember that sets our industry apart, is that government regulations require all financial services firms to have recording and backups of all communications and trading activity on their regulated employees. This becomes a logistically difficult issue with respect to redundancy sites from several perspectives, but vendors and FIs are working together as closely and as quickly as possible to provide a clear path to managing these issues.  

All major trading firms have contingency plans in place to support their capital markets trading floors. Should a crisis occur (major storm, terror attack, etc.) that might impact their trade floor personnel, firms will put their contingency plans in place and allow operations at their redundant facilities. But in the case of a pandemic, a concern is that we might not know where the problem has occurred immediately.

As one approach, we are hearing that firms are creating “clean sites”, where employees (traders) that aren’t showing symptoms of the virus, can work. This kind of event requires agility on the part of the firms to be able to respond appropriately. And current technology, some of it through cloud or automation features, helps provide that agility.

In addition, these firms must have their trading operations working 24/7, all the while recording both their trading desk’s “onsite” or “remote” teams as a clear part of any plan. We and other vendors are working with customers to help maintain the flexibility they need to maintain compliance, regardless of employee location.

A recent communication from the NFA highlighted additional issues. If the situation worsens, the NFA notes that it “has been coordinating with the various industry trade associations with respect to the potential areas of concern.” Additionally, the NFA and CFTC staff mentioned a possible need to address regulatory relief. According to the NFA’s statement, “NFA and CFTC staff intend to take a practical approach that will give members appropriate flexibility in implementing contingency plans needed to continue to conduct business.”

Certainly, large financial institutions have business process plans in place to address any possible scenarios that could have critical business impact. From what we are learning, our financial markets participants are hard at work examining potential weak points that could arise with respect to this unique situation. 

We encourage everyone to re-examine their best practices within their current compliance and business contingency plans considering these events, to consider all possible support scenarios, and to work with their business partners to establish clear protocols in this changing environment. 

Rest assured that regulators are examining these issues in real time within their working groups and are reaching out to organizations to determine where vulnerabilities may lie so that they can be addressed effectively.       

Technology firms are clearly working 24/7 with our financial services organizations customers and partners to get through this challenging situation as carefully and thoughtfully as possible. We stand by to support this ever-changing situation that affects the capital markets.

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