As the regulatory scrutiny of financial markets increases, broking firms are under particular pressure to implement stringent regulatory controls across all aspects of their trading activity.
Global regulators have pinpointed broking firms as high risk due to the frequency and value of transactions that they manage on behalf of clients. As a result, we have seen a significant increase in the volume and severity of enforcement actions being taken against broking firms that fail to meet the compliance standard expected of them.
While the financial impact of enforcement action is self-evident, with almost $80m in fines handed out in Q4 2024 alone, broker firms are increasingly using their regulatory controls as a commercial differentiator in a highly competitive market.
Building reputational credibility through compliance
As the number of broking firms has accelerated in recent years, new entrants, and even established players, find themselves in a position where competitive differentiation is key.
While there are many ways in which firms may approach this challenge, being able to demonstrate a robust commitment to regulatory compliance is emerging as a key strategy. It should go without saying that any broking firm has a legal and moral obligation to ensure that they have appropriate controls in place to prevent market abuse from taking place.
However, the rigour of these controls and their ability to protect market integrity and investors can vary from a ‘tick box’ approach to a fully comprehensive regulatory strategy. Firms that adopt the second approach are not only far less likely to fall foul of regulatory action, but they are also clearly establishing themselves as a more credible investment partner for existing and prospective clients.
Case study: eflow’s TZTS Trade Surveillance solution in action
eflow were approached by Prime FX CFD, a CFD broker based in St Lucia. They needed to implement a credible and robust trade surveillance solution to support both a high standard of regulatory compliance and the ongoing growth of their client base and related trading activity.
Prime FX CFD’s senior management team have decades of experience spanning financial institutions operating in regulated markets and had a clear plan of how they wanted their regulatory strategy to operate.
“Stringent regulatory controls are at the heart of our business model”, they explained. “We want to align our business with the ‘gold standard’ of regulations that you would expect of a tier one institution operating in highly regulated jurisdictions.”
“While there isn’t a regulatory requirement for us to take this approach, we believe that by doing so we clearly demonstrate our commitment to the highest standards of internal controls and delivering a premium experience for our clients.”
Prime FX CFD has now implemented eflow’s TZTS Trade Surveillance system from which they will manage all aspects of their trade surveillance processes. By implementing this solution, they not only have the peace of mind that comes with using proven technology that is trusted by more than 140 clients globally but also have future-proofed their trade surveillance processes as the business grows.
“As our business grows, it’s imperative that our trade surveillance technology can scale with us. eflow’s TZTS system will help us to automate previously manual processes, strengthen our end-to-end regulatory controls, and operate more efficiently”, they commented.
The need for robust trade surveillance
Trade surveillance is crucial in any regulatory landscape, but in markets with stringent rules, it becomes even more vital. Brokers need to actively monitor trading activities to ensure that they are compliant with both local and international regulations. With regulators increasingly demanding that broking firms demonstrate stringent and robust regulatory controls, the lack of a well-established surveillance system can jeopardise a broker’s ability to implement their clients’ trades seamlessly and efficiently.
A strong trade surveillance system is designed to flag suspicious activities and unusual trading patterns that could indicate potential market manipulation, insider trading, or other forms of non-compliant behaviour. Such systems help brokers identify suspicious behaviour or high-risk clients and helps to protect both their clients and themselves from unwanted regulatory attention.
Proactive steps for brokers
Brokers that want to mitigate against the risk of regulatory enforcement action should consider the following steps as part of a holistic compliance strategy:
Investing in technology: Technology solutions can automate the process of monitoring trades and detecting suspicious activities immediately. These tools can provide brokers with alerts and insights into unusual trading patterns, allowing them to take swift action.
Collaborating with compliance experts: Engaging with compliance specialists can help brokers stay ahead of the curve. These experts can assist in navigating the complex regulatory landscape and ensure that brokers are in full compliance with both regional and international laws.
By leveraging a single regulatory tech partner with in-house compliance expertise, such as eflow, brokers can seamlessly demonstrate that they have robust systems in place to meet regulatory requirements that may exceed the standards of their home country.
Find out more about how eflow’s solutions can help you
Request a no obligation consultation call with our team of regulatory experts at a time that suits you here.
They can offer advice and guidance on how to meet your trade surveillance, eComms surveillance, best execution and transaction reporting obligations, as well as explaining how our solutions could help.
