Preparing for MAD II

<p>The second EU Market Abuse Directive (MAD II) is due to come into force in July 2016. In analyzing&nbsp;the level of preparation of financial institutions (FIs), it is clear that the majority are unprepared for&nbsp;the 2016 deadline. They are still in the process of performing their risk analysis, and then identifying gaps in compliance processes and systems for a regulation due to come into force in fewer than six months, and virtually none are prepared in any of the specific areas covered by MAD II.</p>

<p>Partly this is due to a perceived lack of clarity: firms are struggling to establish governance and risk&nbsp;management processes without clear regulatory guidelines to adhere to. Many are waiting for the&nbsp;final review of ESMA technical standards, but the degree of granularity for which many are waiting&nbsp;will likely not be forthcoming. In this situation, FIs are struggling not to achieve full compliance,&nbsp;but to manage the principles of MAD II sufficiently well to save themselves from being identified as&nbsp;regulatory targets.</p>

<p>The Market Abuse Directive does not mandate the automation of processes, but the technical&nbsp;standards1 have stated that the large majority of cases will require an automated surveillance system.&nbsp;Financial institutions will have to be prepared to justify to regulators how generated alerts are&nbsp;managed, and why their implemented processes and systems (automated or not) are appropriate for&nbsp;their business. Therefore, in order to ensure they remain compliant, firms are turning to flexible and&nbsp;automated technology solutions, and this is driving a wave of system replacements and enhancements&nbsp;among FIs, and an overall growth in risk IT expenditure.</p>

<p>Future systems will utilize a combination of communications controls, data mining and advanced&nbsp;analytics. Firewalls and network controls should be supported by link analysis of trading patterns;&nbsp;monitoring of activity across asset classes and the mining of unstructured data, including e-mail,&nbsp;voice and chatroom communications to provide intelligence on potentially unauthorized trading and&nbsp;disclosure of insider information will be vital. Beyond this, the market abuse management systems&nbsp;should include user-configurable rules management, reporting and workflow - MAD II and market&nbsp;abuse regulations are mutable, and FIs should prioritize spending to save, in order to avoid expensive&nbsp;change management processes in future. One observable trend is that 83% of respondents indicated&nbsp;an increase in compliance spend for 2016, and none indicated a decrease. In the face of shrinking&nbsp;margins across the industry this is paired with a challenging trading environment.<br />
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• Topics
• Vendor analysis
• Quantitative Methods
• AI & Machine Learning
• Analytics
• Financial Crime
• Financial Risk
• Trade surveillance
• Regulatory reporting
• Transaction reporting
• Fees, commissions and payments
• Banking
• Asset and wealth management