Digital transformation in Asia: Securing the trading landscape through data analytics

Digital transformation has been one of the biggest trends across the globe in 2015 and Asia is set to be at the forefront of this digital wave in 2016. With 8.6bn connected devices and a robust digital infrastructure, most countries in the region are on their way to implementing digital initiatives that make the most of the opportunities arising from digital transformation.

It is very clear that digitisation is changing the Asian business landscape rapidly and radically. Within the region, enterprises are being forced to completely transform their business models to meet the ever-increasing demands of customers and address new operating realities as well as growth opportunities. Among the industries that are struggling the most with the digital revolution are banks and financial services firms, which are not only under intense pressure to adopt digital strategies but must also comply with the increasingly strict compliance and security regulations.

Significance of the data

One of the key challenges facing the banking, financial services and insurance (BFSI) industry is market surveillance The ongoing transformation of the financial services industry across Asia is having a significant impact on the business strategy of banks and financial firms. 2016 remains a challenging yet exciting period for the markets. With the Monetary Authority of Singapore (MAS) announcing plans earlier this year to upgrade its market surveillance capabilities and ease the regulatory burden on exchanges, both the surveillance and compliance disciplines have come a long way from the early days of responding only to market manipulation and insider trading alerts

The onset of digitisation has paved way for market surveillance. The move towards fully automated electronic trading, and the introduction of direct market access and other forms of trading technology, has also significantly changed the trading environment in which markets operate. NASDAQ’s recent investment in cognitive computing technology signals a growing trend in the banking, financial services and insurance (BFSI) landscape to harness the power of data analytics and machine intelligence capabilities to temper the digital transformation engulfing the industry. To ensure competitive advantage, important players in the BFSI industry have facilitated easier transaction process for end-users. This unwittingly opened a Pandora’s box of security threats to a host of stakeholders, including brokers, regulators and banks.

Brokers finding it tougher to survive

A debilitating global financial crisis in 2008-09, coupled with a growing catalogue of abuses, has engineered a sense of uncertainty in the BFSI industry and provoked supervising bodies to respond with rapidly changing regulatory requirements. This has sparked an exodus in brokerage circles, with over half of future commission merchants (FCMs) falling by the wayside since the crisis.

As the BFSI landscape shifts towards digitalisation, brokers must manage new challenges and strike a delicate balance between fulfilling the company’s internal control mechanism and staying on the right side of regulators. With effective market surveillance, brokers can efficiently manage the daunting tasks of managing big data volume by dovetailing pro-active risk platforms while reducing the exposure of the company’s assets to rogue traders.

Regulators must stay ahead of the curve

As trade volumes increase and profit margins fall, it is imperative that regulators develop a robust trade surveillance and fraud detection infrastructure to detect illegal trading and regulatory irregularities in real-time. Regulators are also constantly under increasing scrutiny and pressure to streamline companies’ internal architecture to ensure that profits are safe from direct fraud and lost revenue due to undetected trading misconduct. Unless regulators embrace real-time automation and upgrade their core infrastructure, rogue and unsuspicious traders will continue to leverage system loopholes – resulting in huge losses for companies.

Integrated capabilities the way forward for banks?

Chief financial officers (CFOs) are increasingly aware of the need for a fully integrated, high-level dashboard to track how organisations are monitoring all aspects of their trading activities. This is vital in preventing fraud or unnecessary losses that might decrease current stock price, and even declining returns on investments and assets. Without a convergence of systems, banks face the arduous and ineffective task of managing surveillance on disparate platforms, which severely limits their ability to develop integrated solutions.

Defining the digital destiny

Financial software providers foresee tremendous potential in the BFSI domain during 2016 arising within the emerging Asian markets. To fully tap onto this opportunity, there is an urgent need to address surveillance strategies with a solution that can be easily implemented and managed across all sectors within the industry. This is especially so in an emerging financial hub such as Asia, whereby a powerful surveillance system displaying multiple functionalities is highly imperative.

While brokers, regulators and banks each face unique challenges in the digitisation of the BFSI industry there is a common denominator, which each of these three stakeholders shares: the need for real-time metrics from multiple big data sources to identify suspicious trading behaviour quickly.

With a multi-purpose monitoring system, brokers, regulators and banks will be able to deploy the same tools to modify trading algorithms, arming them with the ability to take advantage of changing market conditions in real-time. This would allow companies to stay ahead not only of the digital curve, but would also help to lower the cost of owning the technology since the tools can be repurposed for multiple usage.

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