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Communication Surveillance in the Cloud: Why and How for the Financial Services Sector

The historic reticence that financial firms displayed towards cloud-based services has largely been overcome in 2021. Banks are now exhibiting a willingness—or eagerness, even—to swap out solutions based on legacy technology stacks and move to software, platforms, and services in the cloud.

Of course, since cloud-based services run outside the financial firm’s firewall, security is an important consideration, and a wariness of data security in the cloud was at one time a significant blocker to the adoption of cloud-based services. Today, however, there are many cloud service providers reputed to maintain more secure environments than can be found even in the security-conscious financial sector, which provides a level of comfort that is allowing other firms to process and store even the most sensitive data in the cloud.

Most financial firms are continuously looking for ways to make their infrastructures leaner and more efficient, and communications surveillance—with its high and variable data storage requirements—seems ideally suited for migration outside of the firm’s infrastructure and into the cloud where storage is flexible. In a recent report from GreySpark Partners, which represents the culmination of our research into cloud-based communications surveillance technology use in the financial services, we present the advantages and disadvantages of such a migration.

To supplement our understanding of the surveillance space in the financial services sector, GreySpark ran a series of interviews with key personnel in 18 firms to understand where they currently stand in the communications surveillance cloud migration journey—and where they plan to be in the future. Here’s a little of what we learned.

Communications Surveillance in the Cloud

Native cloud-based surveillance solutions are increasingly widely used across the financial services industry. Until the last few years, the adoption of cloud-based solutions was hindered by strategic restrictions. However, blanket policies that restrict the use of cloud-based solutions have become far less prevalent, and today fewer than 12 percent of our research sample had any formal or informal policy in place that restricts the use of cloud-based platforms for surveillance purposes.

In consequence, 76 percent of the research sample are currently using at least one cloud-based surveillance platform, and all but one of those that do not use a cloud-based surveillance platform yet, are considering doing so.

Regulations mandating surveillance and monitoring in the financial services include the revised Markets in Financial Instruments Directive and Regulation (MiFID II), Market Abuse Regulation (MAR), and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). A key requirement of these regulations is that individuals undertaking certain roles in trading firms must have their communications recorded and stored; this includes traders as well as others involved in managing and supporting trading activities. These individuals may communicate using a wide variety of media, such as text, voice, images, attachments, and video, which is determined, typically, by firm-level policy.

Challenges Posed by the Evolution of Communications Data

As working practices evolve, video is increasingly becoming the medium of choice for many business communications, and since financial regulations do not permit recordings to be edited or altered, the size in aggregate of voice, image, and video files can be substantial, which makes it increasingly costly and difficult to store the data using on-premise servers and databases. In addition, processing high data volumes can lead to performance issues which are difficult to diagnose and resolve, which is particularly an issue for firms that utilise on-premise hardware for communications surveillance due to limits on their computational power and storage.

While it still requires hardware at the provider level, cloud storage capacity can be extremely large, effectively removing limitations on volume for individual organisations, and as cloud providers are high-data volume specialists, performance issues are significantly lessened. Communications surveillance data volumes are highly sensitive to market events and volatility is correlated with trade volumes.

Market volatility is difficult to predict, so peaks and troughs in data storage requirements are often unexpected. The high capacity and scalability offered by cloud-based solutions are key benefits but are far from the only ones. The unprecedented and unanticipated surge in mandated home-based working due to the COVID-19 pandemic led to financial services staff utilising a slew of additional communications media to fill the hole left by the prohibition of in-person meetings. As time went on, the range of additional communications were trimmed as firms re-prohibited the use of some platforms, but with much of the workforce continuing to work from non-office locations and on non-desktop devices, some new communications channels need to be retained. Consequently, fast growing cloud-based services like Zoom, Teams, and Slack have seen significantly increased use in the financial services sector over the past 12 to 18 months.

On-premise data storage is cumbersome and expensive to increase and decrease—adding extra capacity requires additional hardware and, in order to maintain sufficient capacity to cope with volatility in volume requirements, it is likely that a significant amount of unutilised hardware will need to be reserved. In short, on-premise data storage for communications surveillance is inefficient, inflexible, and costly. Conversely, cloud storage can be far more flexible and efficient—and using a pay-as-you-go model can allow near immediate increase or decrease of capacity as it ensures that firms are charged for only what they have used, and the physical capacity constraints are passed onto the cloud providers.

Benefits of Cloud in the Communications Surveillance Context

A large proportion of communications surveillance data is unstructured and as such is difficult to store, manage, and analyse using traditional database technology and analytics without undertaking significant transformation and normalisation, which is not necessarily in line with regulation. There are, however, cloud-native data solutions that lend themselves extremely well to the task and, while it might, in theory, be possible to utilise these technologies on-premise using a financial firm’s own hardware, leveraging cloud service providers’ technological expertise is an approach that can be hard to beat in terms of efficacy and cost.

As noted previously, communications media themselves are increasingly cloud-based. For those that are not, the geographical dispersion of the modern workforce means that some element of cloud technology is required as part of the surveillance data consolidation process even where recordings are ultimately destined to be held on physical on-premise databases. Cloud communications surveillance solutions can allow those staff that must be monitored the freedom to work in a variety of office and non-office locations.

Cloud-based SaaS surveillance solutions are remarkably agile when compared to more traditional on-premise platforms. New solutions are more straightforward to deploy and can often be implemented in weeks or even days, unlike on-premise solutions, which can require implementation projects that stretch into months or years. It is also likely to be extremely swift and simple to add, say, new users, media, or data sources, and upgrades and fixes can be installed remotely and out of hours with little to no negative impact or downtime for the users. Therefore, as could be expected, a large majority of our research sample utilised cloud-based SaaS offerings to undertake some part of the daily responsibilities.

Of course, storage of the multitude of surveillance data is of little practical use if it cannot be easily catalogued, managed, accessed, queried, analysed, or retrieved. This is where banks and other financial institutions can struggle, so the option to make use of specialised expertise that can be readily found in the staff of dedicated cloud service providers may be a good alternative to scouring the recruitment market for scarce resources.

Advanced analytics that can leverage the huge volumes of surveillance data to extract valuable insights, such as machine learning, natural language processing (NLP), and behavioural analysis are ideally implemented in a cloud environment, and can be highly effective tools to enhance the effectiveness of surveillance platforms.

Artwork for this post was created by Natalie Andrews.

Download a New Report on Communication Surveillance in the Cloud for Financial Institutions

Jennie Brotherston is a consultant at GreySpark Partners, a capital markets consulting company serving investment banks, hedge funds, and asset management firms.