6TH ANNUAL Nasdaq Global Compliance Survey

Nasdaq Global Compliance Survey

6 T H A N N U A L

2

NASDAQ.COM/TECH | [email protected]

been conducted annually by Nasdaq since 2015. The

2020 GCS includes a targeted examination of the

unprecedented hurdles facing compliance departments

in the midst of the global pandemic, with an eye to

illuminating the key challenges that remain to be tackled

in 2021.

This year’s GCS results include responses from 210

experienced personnel serving directly in financial

compliance roles within financial industry firms. Analyzed

in aggregate, these results provide a quantitative

assessment of the status of compliance departments

across the globe. Respondents were asked quantitative and

qualitative questions about their firm-wide compliance

culture and hierarchy, key operational challenges, budgets

and spending allocation, trade surveillance infrastructure,

and communications monitoring practices.

INTRODUCTION

In the 2020 Global Compliance Survey (GCS), Nasdaq

gathered feedback from financial industry compliance

personnel to open a window into the everyday challenges

encountered in surveillance and compliance operations.

These insights were collected from a variety of financial

industry firm segments, building upon the comprehensive

views gathered via five previous studies, which have

An Exclusive Look Inside the RegTech Tipping Point

Nasdaq Global Compliance Survey

6 T H A N N U A L

Source: 2020 Greenwich Associates x Nasdaq Global Compliance Study. Based on 210 respondents.

EXTERNAL GLOBAL FACTORS REGULATORY SCRUTINY NEW TECHNOLOGY

COVID-19 EFFECTS ARE DRIVING COMPLIANCE PROCESS CHANGES

Regulatory scrutiny has been the major driver of compliance processes each year, but was overshadowed in 2020 by COVID-19 events, with impact expected to increase in 2021

Biggest Driver of Compliance Process Changes Biggest Driver of Compliance Process Changes, Last 12 Months

The next year

The past year

The past 2 years

2018 (N=135)

2017 (N=123)

2016 (N=114)

37% 7%

63%

73%

77%

15%

12%

8%

30%

15%29%

21%

25%

46%

14%

16%

5%

19%

AT THE MIDPOINT OF 2020, PARTICIPANTS CONFIRMED THAT WFH IS EXPECTED TO REMAIN A

WIDELY AVAILABLE OPTION

Q. How strongly do you agree or disagree?

“My firm will allow traders to work from home on an extenuated basis”


SOMEWHAT AGREE

AGREE

I DON’T KNOW/NOT

APPLICABLE

DISAGREE

66%

4%

12%18%

MARKET TECH

NASDAQ.COM/TECH | [email protected] 3

FIRST LOOK: IMPACT OF COVID-19

At the midpoint of 2020, two-thirds of GCS

participants confirmed growing expectations that

firms in the financial industry will continue work-

from-home practices as a permanent infrastructure

option, even after pandemic concerns eventually

abate. The extent of change in compliance practices

resulting from this year’s events is further reflected

in respondents’ views of compliance change drivers,

with “external global factors” being cited as the

primary instigator of compliance process evolution

in 2020 as well as 2021 by 29% and 37% of

respondents, respectively. In all previous years of

GCS, global factors were considered to be relatively

low consequence, with regulatory scrutiny instead

dominating participant concerns.



PARTICIPANTS ARE WELL VERSED IN BOTH TRADE SURVEILLANCE AND COMMUNICATIONS MONITORING FUNCTIONS

Familiarity with trade surveillance within organization Familiarity with electronic and audio communications monitoring within organization

NOT AT ALL FAMILIAR

SOME WHAT FAMILIAR

FAMILIAR

VERY FAMILIAR

6%15%

8%

22%20%

27%

67%

36%

VENDOR AND AUTOMATED TECHNOLOGY USE FOR COMMUNICATIONS SURVEILLANCE IS FAR BEHIND TRADE SURVEILLANCE

Q. In which areas do you utilize automated processes and specialized technology?

Q. Does your firm use a vendor solution for communications monitoring?

Communications surveillance technology use is similar to trade surveillance technology leverage in 2012

YES

NO

DON’T KNOW

45%

27%

28%

43%

68%

Communications surveillance

Trade surveillance

MARKET TECH


Skyrocketing Demand for Surveillance Technology

The impact on compliance technology spending, however,

is even more compelling as a testament to the pandemic-

related challenges faced by financial firms this year.

Participants were well versed in the workings of their

firms’ surveillance infrastructures, with 87% of respondents

considering themselves “familiar” or “very familiar” with

trade surveillance processes and 63% reporting the same in

relation to communications surveillance. Accordingly, their

informed insights into the impact of COVID-19 on these

areas of compliance were illuminated in their resounding

confirmation of the qualitative trends observed throughout

the year in the compliance world.

SURVEILLANCE TECHNOLOGY DOMINATED 2020 COMPLIANCE BUDGETS AS DID INVESTMENT IN DATA QUALITY AND INTEGRATION

Surveillance Technology Investment: 2020 Priorities


After focusing on core infrastructure in 2020, data quality and monitoring will be key focus

INVESTED IN 2019 (N=83) INVESTED IN 2020 (N=138)

PLANNED FOR 2021 (N=138)

Vendor platform (replace/upgrade existing vendor)

In-house surveillance platform

Data quality improvement

Communications channel coverage

Data source integration

33%

20%

43%

33%

27%

27%

41%

39%

30%

30%

38%

43%

49%

58%

25%

MARKET TECH


Alert Investigation and Integration: Lessons Learned

The burden of the WFH transition and the resulting

impact on communications monitoring and surveillance

practices was even more dramatic. Not only did

many firms face a pressing and uphill battle to adjust

monitoring and alert coverage to the near-overnight

onslaught of an entirely transformed world of business

communication, but even more found themselves lacking

the basic infrastructure to coordinate surveillance efforts.

The alert investigation deficiencies that were laid bare

under 2020’s extenuating circumstances are top of mind

for GCS participants, with source integration overtaking

false positives as respondents’ most-requested

surveillance system improvement since 2019.

The importance of investigation workflow to surveillance

platform success is clear – 54% of study participants

ranked alert management as the most important factor

in surveillance efforts, behind only market manipulation

(63%) and slightly ahead of insider trading (49%). Yet,

only 27% of 2019 respondent firms employed even a

rudimentary form of coordinating investigation efforts

between communications and trade surveillance alerts,

despite the compliance industry’s emphasis on the value

of such holistic integration. In recent years, progress

had not been made in this area, as there is no statistical

difference from the 25% reported in 2018. By mid-

2020, however, efforts by respondent firms to integrate

alerts rose to 34%. The most dramatic and tell-tale shift

took place on the buy-side, where the number of firms

working towards holistic alert integration doubled from

23% to 46%, and the percentage of buy-side respondents

reporting siloed review of communications surveillance

alerts fell from 60% to 21%.

One major effect reported by a majority

of respondents was the stark increase in

unplanned trade surveillance technology

spending. While only one-third of firms

had planned budget allocations to third-

party surveillance technology platforms

(according to 2019 GCS data), 2020

respondents indicated spending on these

solutions ultimately transpired in 58% of

firms represented. Spending on in-house

surveillance technology also saw unexpected

increases from initial plans, with 43% of

respondents reporting investments in

internal surveillance builds, compared to 20%

in 2019.


Q. If you could improve one aspect of your trade surveillance system, what would it be?

2016(n=66)

2017 (n=67)

2018 (n=56)

2019 (n=74)

2020 (n=156)

Market manipulation

Alert management

Insider trading

Data source integration

Alert capabilities

INTEGRATION OF ALL INFORMATION SOURCES

REDUCTION OF FALSE POSITIVES

ADVANCED INTERFACE

ADVANCED ALGO FUNCTIONALITY

DEMAND FOR WORKFLOW AND INTEGRATION IMPROVEMENTS IN ALERT PROCESSING IS COMPELLING

Q. When thinking about trade surveillance requirements, which of the following will be the most important over

the next 12 months?

Communications surveillance technology use is similar to trade surveillance technology leverage in 2012

36% 29% 14% 8%

30% 41% 14% 7%

43% 25% 20% 4%

33% 27% 18% 9%

33% 30% 12% 11% 63%

54%

49%

44%

42%


Q. Which of the following e-comms monitoring models best describes your firm’s current practice?

2020 (n=145)

2019 (n=170)

2018 (n=126)

STAND-ALONE MODEL: ANALYST REVIEW OF

E-COMMS ALERTS, NO INTEGRATION

E-COMMS ALERT REVIEW IS INTEGRATED INTO THE

TRADE SURVEILLACE ALERT REVIEW PROCESS

NO SYSTEMATIC E-COMMS ALERT REVIEW EXISTS

COMMUNICATIONS SURVEILLANCE ALERTS INTEGRATION IS GROWING, BUT NOT WIDESPREAD, BUY-SIDE TRANSFORMATION HAS BEEN DRASTIC

Buy-side communications alert review process transformation in 2020

Holistic integration is not yet pervasive, but the buy-side has transformed alert review structure since 2019

39% 34% 10%

43% 27% 11%

53% 25% 14% 21%

60%

46%

23%

Integrated with trade surveillance alert review

Conduct siloed review of e-comms alerts

2019 (N=35) 2020 (N=24)

MARKET TECH



UPHOLD AND PROTECT FIRM’S REPUTATION AVOID REGULATORY FINES

2020 (N=210)

2019 (N=187)

2018 (N=135)

2017 (N=123)

2016 (N=114)

68% 18%

63% 23%

67% 17%

71% 12%

68% 19%

Q. In your opinion, what is the compliance department’s most important function?

REPUTATION PROTECTION REMAINS THE CORE FUNCTION OF COMPLIANCE

After emphasis on regulatory fine avoidance increased significantly from 2017 to 2019, reputation protection returned to the highest priority level in 2020

MARKET TECH


COMPLIANCE INFRASTRUCTURE EVOLUTION

Reputation and Regulation

Protecting a firm’s reputation has long been

considered the core function of compliance

and the ultimate driver of Regtech investment

decisions. Regulatory violations and avoiding

resulting fines may be the technical goal of firms’

compliance functions in tangible terms, but the

potential destructive power to firm reputation

can yield more impact on firm profitability in the

long term. Respondent consensus in 2020 upholds

this tradition; 68% of respondents affirmed that

reputation management is the most important

mandate of compliance, while only 18% cited

regulatory fine avoidance – results that closely

echo previous years.


Firms with Dedicated Reputaional Risk Resources

Promoting firm-wide culture

of proactive compliance

Clear and timely

communications regarding

compliance infractions

Communicating actions

taken to improve compliance

Monitoring media reports

on fines/infractions

Ensuring quality public

reporting

Maintaining firm brand

as thought leader on

compliance issues

Promoting senior leadership

in the public domain

TWO-THIRDS OF RESPONDENT FIRMS DEDICATE RESOURCES TO REPUTATIONAL RISK MANAGEMENT

Q. Which of the following standards fall under your firm’s mandate for reputational risk management?

Firms’ increasingly proactive approach to compliance has been driven by the core mandate of managing reputational risk, which focuses on clear communication and timely action

YES NO

78%

70%

59%

58%

50%

47%

33%

2019 (N=187)

36%

63%

2020 (N=210)

32%

67%

MARKET TECH


According to GCS participants, 67% of firms now have

resources specifically dedicated to reputational risk

management, instead of considering the function as a

by-product of compliance efforts. Top standards falling

under the reputational risk management umbrella

include promoting the firm’s culture of compliance (78%),

ensuring clearly communicated compliance policies and

actions (70%). Monitoring media coverage (58%), public

reporting (50%), and brand management (47%) are also

frequently established goals of this mandate.


Q. From a regulatory standpoint, what is your top concern over the next 12 months?

FIRMS ACROSS SEGMENTS CONSISTENTLY AGREE ON THE IMPORTANCE OF ASSESSING REGULATION’S IMPACT AND INVESTING IN REGTECH

Q. From a regulatory standpoint, what is your top concern over the next 12 months?

The sell side’s view of regulatory concerns matches the cross-segment consensus and has not changed during the last year, but buy-side firms are far more worried about regulatory impact

2019 (n=84)

Sell-side Buy-side

2019 (n=37)2020 (n=85) 2020 (n=31)

2020 (n=172)

2019 (n=178)

2018 (n=130)

2017 (N=123)

2016 (N=114)

48% 24% 16% 12%

44% 26% 15% 15%

55% 27% 7% 9%

48% 29% 13% 10%

55% 11% 19% 14%

UNDERSTANDING REGULATORY IMPACT INSUFFICIENT TECHNOLOGY INFRASTRUCTURE STAFFING RESOURCES FINANCIAL RESOURCES

19%

12%

26%

43%

11%

16%

29%

45%

8%11%

22%

58%

10%13%

10%

68%

MARKET TECH


Regulatory Impact Across Firm Types

Even in 2020, the topics that “keep compliance personnel

awake at night” have remained remarkably unchanged.

Yearly survey results have consistently indicated

that approximately half of participating compliance

personnel consider understanding regulatory impact

to be their dominant concern, while one-quarter cite

technology infrastructure and 10-15% point to financial

resources. Notably, even the challenges stemming from

COVID-19 did not cause a similar spike in concerns over

regulation as reported during the countdown to MiFID

II implementation. This could be interpreted as either a

testament to global regulators’ efforts to avoid imposing

additional hardship on the industry (indicated by rapidly

issued no-action announcements for non-consequential

failures in meeting various requirements), or as an

indicator of the sheer magnitude of challenges imposed

by MiFID II.

Although aggregate results displayed resilience, response

data suggests that not all firm segments were equally

stoic. While sell-side participant results remained closely

in line with 2019 responses, buy-side representatives

indicated a noticeable increase in concern over their

understanding of regulatory impact, indicated by a 10%

increase of buy-side respondents.


70% OF RESPONDENTS USE VENDOR SOLUTIONS FOR SURVEILLANCE; PREFERENCE FOR ON-PREM DEPLOYMENTS HAS DECLINED DRAMATICALLY

Q. If you were to consider a vendor for trade surveillance, which of the following would best

characterize your preferences?

Q. Does your firm use a vendor solution for trade surveillance?

Security concerns have diminished; firms are more open to hosted solutions than previously seen

YES

NO

DON’T KNOW

70%

24%

6%2020 (n=155)

2019 (n=41)

2018 (n=40)

2017 (n=60)

2016 (n=60)

13% 36% 30%

17% 39% 37%

18% 30% 35%

28% 23% 37%

35% 27% 32%

ON-PREMISE DUE TO SENSITIVE DATA

VENDOR SOLUTION WITH ASSURED SECURITY

ANY APPROACH; MINIMAL SECURITY CONCERS

MARKET TECH


SURVEILLANCE TECHNOLOGY INFRASTRUCTURE

The state of specialized surveillance technology

deployment across financial firm segments has improved

dramatically over the last decade, and third-party

technology usage trends have shifted dramatically

since the launch of Nasdaq’s yearly GCS efforts. In

2020, 70% of respondents currently leverage vendor-

provided surveillance technology, while less than half of

participant firms were open to even considering vendor

adoption in 2016.

A key driver of this shift in attitude has likely been the

gradual reduction of data security concerns. In 2020, only

13% of GCS participant firms open to vendor-provided

surveillance platforms are limiting their options to on-

premise deployments, compared to 35% limiting their

options to this preference just four years ago. Growing

trust in cybersecurity practices has likely supported this

technology strategy makeover, reflected here by the

growing number of firms open to adopting third-party

technology with assured security, which rose to 36% this

year from 27% in 2016.

Improvements in functionality and cost efficiency

have also likely supported the move away from sole

reliance on systems built in-house or strictly on-premise

deployments. In comparison to 2017, 2020 GCS results

suggest that noticeable improvements have been

made in core functionality areas such as reduction of

false positives, marrying structured and unstructured

data sources, and robustness of overall surveillance

technology infrastructure—the percentage of respondents

rating these components of surveillance monitoring

efforts as “extremely” or “very” challenging declined

by 11% to 15% of participants working directly in trade

surveillance roles, respectively. Moreover, TCO has also

improved during the same time period. Surveillance

respondents considering TCO management extremely

challenging declined by 13% of the participant category.

Likewise, respondents who reported moderate or

extensive improvements in overall cost of running a

surveillance program increased by 9% of surveillance-

focused participants.


TOTAL COST OF OWNERSHIP HAS ALSO IMPROVED

Q. How challenging is managing the following regards to trade surveillance?

Q. Has your surveillance or compliance team made changes to the following areas in the past 12 to 18 months?

Managing TCO has decreased in challenge level, while respondents report that improvements have been recently made to overall cost.

NOT AT ALL CHALLENGING A LITTLE CHALLENGING

VERY CHALLENGING EXTREMELY CHALLENGING

QUALITY HAS GONE DOWN MAINTAINED STATUS QUO

MINOR TO MODERATE IMPROVEMENTS

MADE EXTENSIVE IMPROVEMENTS

Managing TCO

2017 (n=67) 2020 (n=157)

5%

5%27%

37%

30%17%

36%

30%

The current cost of running an effective surveillance program

2019 (n=74) 2020 (n=156)

7% 4%

4%13%

28%

28%

49%40%


EFFICACY OF CORE SURVEILLANCE FUNCTIONS HAS STEADILY INCREASED, DESPITE 2020 CHALLENGES

Q. With regard to surveillance monitoring, how challenging is each of the following?

NOT AT ALL CHALLENGING A LITTLE CHALLENGING VERY CHALLENGING EXTREMELY CHALLENGING

Lack of sufficient surveillance technology

Marrying trading data with unstructured sources (e.g. communications)

Reduction of false positives

2017 (n=67) 2017 (n=67)2020 (n=157) 2020 (n=157) 2017 (n=67) 2020 (n=157)

27%

12%

28%17%

33%22%

27%

45%

39%

30%

32%

31%

21%

32% 22%

24%

12%

3%6% 8%

8%

42%

21%

5%

MARKET TECH


However, despite the positive strides that have been

made in these core areas, other components of the

surveillance process have not shown any meaningful

improvement. GCS responses indicate that workflow

efficiency, utilization of multiple systems in alert

investigations, and combining surveillance system data

with other internal system data have seen little to no

improvement during the last three years. Deficiencies

in these areas were likely direct contributors to the

formidable challenges in alert investigation processes

experienced this year during the height of market

volatility in the beginning of the pandemic – to that end,

these deficiencies are prime candidates for investment

and infrastructure development in 2021.


NOT AT ALL CHALLENGING A LITTLE CHALLENGING VERY CHALLENGING EXTREMELY CHALLENGING

Workflow management

2017 (n=67) 2020 (n=157)

Utilization of 3+ systems for alert investigation

2017 (n=67) 2020 (n=157)

Linking trade surveillance alerts with internal trading

2017 (n=67) 2020 (n=157)

6%

39%

45%

8%

12%

39%

31%

11%

6%

33%

36%

12%

11%

29%

32%

11%

8%

36%

31%

21%

6%

32%

36%

16%

HOWEVER, WORKFLOW AND ALERT INVESTIGATION PROCESSES HAVE NOT PROGRESSED MUCH DURING THE SAME TIME PERIOD

Q. With regard to surveillance monitoring, how challenging is each of the following? (Among respondents who are primarily responsible for trade surveillance)

MARKET TECH

12



THE IMPORTANCE OF COMPLIANCE TO FIRM OPERATIONS HAS NEVER BEEN HIGHER THAN IN 2020

My organization considers compliance standards highly important

Our compliance organization has a “seat at the table” in executive conversations about the firm’s strategic direction

Respondents who “strongly agree” with the crucial role compliance departments serve jumped significantly from 2019, with a similar increase regarding the influence of compliance on firm strategy

2020 (N=210)

2019 (N=187)

2018 (N=135)

2017 (N=123)

2016 (N=114)

2020 (N=210)

2019 (N=187)

2018 (N=135)

2017 (N=123)

2016 (N=114)

STRONGLY AGREE AGREE NEUTRAL DISAGREE STRONGLY AGREE AGREE NEUTRAL DISAGREE

57% 31%

51% 41%

69% 29%

63% 32%

74% 21% 59% 32% 9%

50% 34% 12%

47% 42% 10%

38% 47% 10%

40% 36% 13% 11%

MARKET TECH


2021 & BEYOND: ADJUSTING TO THE NEW NORMAL

The criticality of compliance to firm operations and the influence

of compliance priorities and mandates on overall firm strategy

have been steadily expanding during the era of Regtech growth,

which began in earnest in 2010. And in 2020, GCS participants

confirmed that the importance and influence of compliance

departments has never been higher. In 2020, respondents who

“strongly agree” that their firm considers compliance highly

important reached 74%. Likewise, 59% similarly affirmed that

compliance directly influences their firm’s strategic direction.

Both results represent all-time highs in these topics and show

statistically significant increases since 2019.

Ironically, firms represented in the GCS have also never been

more prepared for upcoming challenges. With adjustments

to transformative initiatives such as Dodd-Frank and MiFID

II maturing past the implementation stages, and without new

surveillance-related regulatory overhauls on the immediate

horizon, proactively-minded firms are focusing on improving

surveillance program effectiveness, increasing cost efficiencies,

and fortifying infrastructure weaknesses exposed by the

unprecedented events of this year rather than struggling to

adjust to new requirements.


AFTER THE COVID-19 TRIAL BY FIRE, COMPLIANCE PERSONNEL ARE FEELING MORE PREPARED FOR NEW REGULATIONS THAN EVER BEFORE

Q. How prepared do you think your organization is for regulatory changes and implementations to come into effect

over the next 12 months?

Q. Which specific regulations do you think will be most challenging to address over the next 12 months?

(Check all that apply)

Regulation is likely to tighten to cover WFH risks, but firms are already addressing the gaps

Existing major regulation no longer spurs worry; firms have had time to adjust

COMPLETELY PREPARED ADEQUATELY PREPARED

SOMEWHAT PREPARED NOT PREPARED

2020 (N=171) 2017 (N=123)

2020 (n=171)

2019 (n=178)

2018 (n=130)

2017 (N=123)

2016 (N=114)

MiFID

Dodd-Frank Ac

tMAD/MAR

FATCA/GATCA

Uncleared Margin

Rules (UMR)

Other regional

regulation

DFS 500/other

cybersecurity

6th EU AML

Directive (6AMLD)

Basel III

24% 53% 21%

13% 57% 26%

15% 60% 23%

17% 57% 24%

16% 58% 24%

42%66%

23%

20%

24%

30%

18%

18%

18%15%

17%

16%

14%20%

MARKET TECH


Compliance Budgets and Allocations

Compliance spending has exceeded expectations from the

previous year, but slowing of budget expansion has been

looming since 2019, and many firms are facing cost-

cutting necessities amid 2020 challenges and ongoing

pandemic uncertainty. While budgets are not shrinking,

expected growth is a bit cooler than in previous years.

Approximately 40% of respondents reported increasing

budgets this year and expect increases to continue in

2021 – this number is a noticeable decline from the 50%

of 2019 respondents expecting budget increases and the

62% reporting YoY growth in the 2018 to 2019 period.

Although budgets are expected to increase in 2020, it is a

smaller number than in previous surveys. This trajectory

marks the first statistically significant shift in budget

growth trends since GCS launch.

Nevertheless, budget allocation priorities reflect

participant firms’ prioritization of addressing the key

infrastructure holes highlighted by pandemic-related

events. In 2020, overall compliance budgets were

diverted to the most problematic areas – surveillance

programs, compliance personnel, and communications

monitoring. Allocations are expected to be spread more

evenly in 2021, but respondents expect these key areas

to continue leading allocation priorities. Looking ahead,

respondents indicate that allocations to compliance

workflow and integration efforts are set to increase

significantly in comparison to 2020 levels, which fell well

below 2019 plans.


ALTHOUGH COMPLIANCE BUDGET GROWTH WILL REMAIN NET POSITIVE IN 2021, SLOWDOWN IS INEVITABLE WITH IMPENDING BUDGET PRESSURE

Q. How has your company’s compliance spending changed over the following timeframes?

-40% -20% 0% 20% 40% 60%

DECREASE NO CHANGE INCREASE 1-10% INCREASE >10%

Past 12 mo (N=114)

Past 12 mo (N=123)

Past 12 mo (N=135)

Past 12 mo (N=186)

Past 12 mo (N=199)

Next 12 mo (N=198)

20

16

20

17

20

18

20

19

20

20

Percentage of firms noting compliance budget increases declined by 10% in 2020, but firms expect continuing net spending growth despite COVID budget cuts

22% 17% 22% 17%

19% 17% 21% 19%

19% 18% 25% 25%

22% 7% 21% 31%

15% 13% 20% 37%

17% 7% 18% 37%


COMPLIANCE BUDGET PRIORITIES REFLECT COVID-SPECIFIC CHALLENGES

Q. Compliance Budget Priorities (2019 to 2021)

INVESTED IN 2019 (N=186) INVESTED IN 2020 (N=190) PLANNED FOR 2021 (N=190)

Surveillance technology and staff expenditures dominated 2020 compliance budgets and remained flat* compared to 2019, and are expected to remain leading prioriies in 2021

Surveillance technology

Additional staff

Communications

monitoring

Workflow/interface

Investigative &

discovery tools

Holistic integration

• Spending on communications monitoring

was also statistically consistent with

2019 levels

• Allocations to case management

tools (workflow and discovery) were

definitively reduced from 2019; but

firms intend to reprioritize workflow

improvement in 2021

• Investment in developing holistic

integration capabilities is also likely

to resume in 2021

70%

57%

54%

41%

42%

45%

45%

37%

22%

36%

32%

29%

33%

39%

35%

32%

65%

41%

MARKET TECH



NEW HIRES WERE TAPERING OFF, BUT ALLOCATIONS FOR ADDITIONAL STAFF ARE SET TO STRENGTHEN AFTER LESSONS LEARNED DURING 2020

Q. How has the number of compliance staff within your organization changed in the last year?

NO CHANGE (RH AXIS) DECREASED INCREASED

35%

30%

25%

20%

15%

10%

5%

0%

2021e (n=176)

2020 (n=176)

2019 (n=185)

2018 (n=134)

2017 (N=123)

2016 (N=114)

9%

19% 37%

42%

50%

49%

57%11%

16%

7%

21%

36%


RECENT HIRES WERE DISTRIBUTED ACROSS EACH EXPERIENCE LEVEL IN 2020, WITH SUPPORTING AND MID-LEVEL STAFF TO REMAIN A FOCUS

Training & Research Investments Q. What type of compliance staff have you invested in? (Check all that apply)

2019 (N=98) 2020 (N=108) 2021E (N=108) 2019 (N=106) 2020 (N=136) 2021E (N=136)

80% 39%

52%

38%

52%

53%

43%

62%

48%

46%

34%

39%

24%

18%33%

24%

69%

35%

42%

49%

46%

48%

47%

46%

49%

44%

41%

32%

44%

32%

Non-technology resource investments reversed previous trends, with firms focusing on fortifying internal expertise and senior-level hires

Hiring qualified

personnel

Vendor-provided

educational materials

Classes/seminars

Professional outside

counsel

Purchasing educational

materials

Support/administrative

(1 to 2 years)

Supporting analyst

(2 to 5 years)

Mid-level analyst

(5 to 7 years)

Senior/Managerial level

(7 to 10 years)

Executive level

(10+ years)

MARKET TECH


Compliance Personnel

As noted in Nasdaq’s recent blog post,

the extreme market volumes, the

extreme market volumes and volatility

experienced in March of 2020 exposed

weaknesses in surveillance infrastructures,

particularly those unprepared in terms

of comprehensive platforms and/or the

internal expertise and resources necessary

to rapidly adjust processes and parameters

to fit fluctuating market conditions. GCS

data indicates that, in addition to increased

surveillance technology spending, firms

are also shoring up internal expertise, with

compliance personnel hiring levels expected

to increase in 2021 and expected to focus

on analyst-level hires.

https://www.nasdaq.com/articles/hiding-amongst-the-noise-looking-for-market-manipulation-during-times-of-high-volatility


SURVEILLANCE PLATFORM SPENDING DOMINATED 2020 TECHNOLOGY PRIORITIES, BUT FUNCTIONALITY INVESTMENT IS PLANNED TO RESUME IN 2021

Surveillance Technology Investment: 2021 Growth Re-Focus

INVESTED IN 2019 (N=83) INVESTED IN 2020 (N=138) PLANNED FOR 2021 (N=138)

Firms plan to resume investments in AI, Cloud, NLP, and crypto coverage in 2021

40%

11%

42%

10%

4%

35%

32%

30%

24%

16%

39%

30%

39%

28%

31%

Cloud integration

Natural language processing

Artificial intelligence (AI) capabilities

Network analytics

Cryptocurrency

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17

Returning to Innovation

While focus was predictably diverted to shoring up core

infrastructure and resources, forward-thinking compliance

officers are eager to plan for investment in innovation. Cloud

migrations and development of NLP and AI capabilities are set

to be high priorities in the post-2020 world, as is adoption of

cryptocurrency surveillance coverage.


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CONCLUSION

The past year has certainly thrown several curve balls

as a result of the COVID-19 pandemic, which is clearly

reflected in GCS results. For the first time in GCS history,

“external global factors” were cited by respondents

as the top driver of compliance process changes,

surpassing regulatory scrutiny, with 37% of respondents

expecting the impact of these events to continue driving

compliance evolution in 2021. There is no doubt that

continued impact will be seen throughout the next

year as two-thirds of firms note that they expect WFH

practices to remain commonplace.

With the unexpected global factors that took place

in 2020, compliance teams pivoted quickly to adjust

resources to effectively manage systems and processes

in the height of extreme market volatility. Surveillance

teams and processes globally were stress-tested to new

levels. With the sudden move to a work-from-home

environment, 2020 data displays a significant rise in

the importance of compliance and its influence on firm

strategy compared to 2019.

Firms have been forced to reevaluate processes and

procedures and many compliance budgets were re-

directed to core functionality such as supporting false

positives and data integration, while planned investments

in innovation, such as AI, were put on hold. While

spending shifted away from innovation initiatives,

vendor platform spending was the top spending item

reported for 2020. Firms have also re-invested in in-

house staffing expertise, and plan to continue these

investments. Increased spending on key surveillance tools

enabled respondent firms to effectively handle the WFH

transition, according to respondents.

Moving into next year, firms will continue to invest in

compliance; however, budget increases are expected to

be smaller than in previous years. This trajectory marks

the first statistically significant shift in budget growth

trends since GCS launch. Looking ahead, firms indicate

that allocations to compliance workflow and integration

efforts are set to increase significantly in comparison to

2020 levels, which fell well below 2019 plans.

In a year of ‘anything but normal,’ compliance systems

were remarkably resilient and compliance personnel

played a pivotal role in a smooth transition to WFH. As

the world begins to normalize in 2021, compliance will

continue to play a pivotal role in ensuring integrity and

transparency in financial markets worldwide.

GEOGRAPHY AND FIRM SEGMENT DEMOGRAPHICS REMAIN CONSISTENT WITH HISTORICAL TRENDS, WITH SLIGHTLY HEAVIER APAC REPRESENTATION

Respondents by Region


Shift of ~10% of respondent base away from EMEA towards APAC; US representation steady

Firm segmentation remains closely aligned with historical range

Respondents by Firm Type

2020 (N=210)

2019 (N=185)

2018 (N=135)

2017 (N=123)

2016 (N=113)

2020 (N=210)

2019 (N=187)

2018 (N=135)

2017 (N=123)

2016 (N=114)

AMERICAS EX-CANADA ASIA-PAC

EMEA CANADA

SELL-SIDE BUY-SIDE CORPORATE OR RETAIL BANK

MARKET INFRASTRUCTURE ENTITY

38% 30%

22%

12%

16%

21%

30%

28%

8%

7%

19%

28%

41%

13%

11%

6%

39%

41%

46%

43%

50% 18%

20%

29%

17%

22%

20%

23%

19%

9%

18%

18%

17%

14%

13%

10%

48%

44%

44%

46%

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RESPONDENT DEMOGRAPHICS

The GCS, which has been fielded annually by Nasdaq

since 2015, consistently yields respondent demographics

that reflect the types of firms in which sophisticated

surveillance systems and practices are in high demand.

The respondent base for this annual study is typically

comprised of predominantly sell-side firms (50% of 2020

respondents), with healthy representation from other

financial firm segments, including the buy side (18%),

retail banks or corporate entities (18%) and market

infrastructure providers (14%).

Respondent-base demographics in 2020 continue to

support continuity of trend analysis and forward-looking

estimates by reflecting similar patterns to those seen

in previous iterations of the GCS. Response data was

sourced from experienced compliance personnel, with

41% reporting more than 10 years of compliance role

experience and 60% of respondents holding a C-level,

VP-level, or director position. Additionally, over 75%

of total respondents were knowledgeable about trade

surveillance as well as other compliance functions, while

GCS results have reflected increasing familiarity with

communications monitoring in recent years.

In line with previous annual results, the largest

respondent demographic was Americas based (38%,

primarily U.S. respondents). One subtle difference from

prior demographic trends was a growing representation

from Asia-Pac based respondents, which expanded

to 30% of the respondent base from 22% in 2019.

Remaining respondents represented firms based in EMEA

(19%) and Canada (13%).

The GCS respondent base has also been heavily centered

on personnel focused on the trade surveillance, general

compliance, and communications surveillance functions,

with 76%, 52%, and 35% of 2020 respondents reporting

expertise in these respective areas. Notable portions of

participants were also knowledgeable in AML/KYC (30%),

front-office functions such as sales and trading (25%), and

compliance technology (22%).

EXPERIENCE AND SENIORITY OF PARTICIPANTS IS CONSISTENTLY HIGH AND HAS SHOWN LITTLE FLUCTUATION

Q. How many years of experience do you have working in a compliance role?


Most experienced respondent base to date (65% of sample reporting 6+ years in a compliance)

Seniority of respondents remains high, with 60% of responses from Director or C-level executives

Q. Please select the option that most accurately aligns with your hierarchical role.

2020 (N=210)

2019 (N=187)

2018 (N=135)

2017 (N=123)

2016 (N=114)

2015 (N=158)

2020 (N=210)

2019 (N=187)

2018 (N=135)

2017 (N=123)

2016 (N=114)

2015 (N=158)

MORE THAN 10 YEARS 6 TO 10 YEARS

3 TO 5 YEARS 2 YEARS OR LESS

C-LEVEL EXECUTIVE VP/DIRECTOR LEVEL

ASSISTANT VP, ANALYST, OR ASSOCIATE

41% 24% 19% 16%

44% 18% 28% 10%

34% 30% 27% 9%

38% 23% 24% 15%

32% 20% 26% 20%

37% 27% 23% 14%

16% 44% 40%

19% 42% 39%

22% 38% 42%

10% 55% 35%

13% 51% 36%

17% 50% 34%


Q. Please indicate the areas in which you are involved within your firm’s organization (check all that apply).

Trade surveillance

General compliance

Communications surveillance

AML/KYC compliance

Front-office business

Compliance IT or tech

2020 (N=210) 2019 (N=187) 2018 (N=135) 2017 (N=123)

GCS PARTICIPANTS REFLECT DEEP KNOWLEDGE OF TRADE SURVEILLANCE, BUT EXPERIENCE ACROSS COMPLIANCE FUNCTIONS HAS EXPANDED

76%70%

39%41%

52%63%

35%40%

35%40%

3%2%

30%39%

6%3%

25%30%

7%5%

22%25%

4%2%

Respondents’ involvement across compliance functions diversified after 2018

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© 2020, Nasdaq, Inc. All Rights Reserved. 2744-Q20

6TH ANNUAL Nasdaq Global Compliance Survey

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