e-FX Awards 2020: Best surveillance provider for FX – Ideal Prediction

In the past decade, banks have learned that the cost of not detecting bad behaviour on trading desks can be a very expensive proposition. Fines levied by regulators for failures of good conduct have reached hundreds of millions of dollars and have led to prison terms for offenders.

In such cases, whether or not the sanctioned conduct was unintentional, the consequence of malicious intent often matters little as the reputational and monetary damage is beyond repair.

While banks have reinforced their risk management and supervisory teams to catch bad behaviour early on, that in itself is not always enough.

This is where an independent partner comes in, says John Crouch, chief executive of Ideal Prediction.

“Trading desk reports can be misinterpreted – or worse, manipulated,” he says. “Without access to an independent assessment, those who stand to get fired for a certain activity or that may have caused a huge liability for the firm may not be motivated to come forward.”

“Senior management and decision-makers at banks rely on Ideal’s independent monitoring for peace of mind, knowing they can pinpoint activities that may not be entirely ethical,” Crouch says. “We provide senior managers with an objective, contextualised understanding of their business and ensure that their risk appetite aligns with their personal responsibilities.” 

Perhaps most importantly, Crouch highlights they must have confidence and evidence that the activities of their trading desks can withstand the scrutiny of regulators and the courts, should that need ever arise.

“Ideal works for the banks, in alignment with the intentions of the regulators,” he says. “Our aim is to identify if practices are ethical, and help banks adjust their behaviour accordingly. While we are not working for the regulators, they like our holistic top-down approach.”

Ideal independently checks that trading activity is ethical from a broad perspective, that it abides by best practices and regulations, and presents the results in an intelligible and user-friendly interface.

To identify these practices, Ideal’s market abuse surveillance service Scope monitors human and algorithmic trading behaviour through standardised checks on customisable parameters. It combines workflow and data analytics to codify the principles-based concepts of the FX Global Code of Conduct into rules to check adherence to the spirit of ethical trading activity.

To achieve this, Ideal’s team of fixed income, commodities and FX markets experts has combed through the code to translate their practical trading experience into a codified best trading practices analytics monitor.

The result is an automated service that monitors disparate datasets to help firms identify and mitigate risks by providing them with actionable insights.

While Scope is designed to handle high volumes of data that many older surveillance systems cannot handle, it must nonetheless normalise datasets sourced from banks, electronic communications networks, exchanges and vendors to ensure its health.

“An essential element of the Scope process is normalising and validating bank-provided data to discover potential issues,” explains Crouch. “Organised data is required to address issues, but that data must be complete and accurate. If the information is incomplete, the analysis may miss genuine issues and give a false sense of comfort.”

“The expertise of our team is essential to deliver something of true value,” he says. “We understand trading and we’re comfortable with normalising raw data. We can put datasets together in a day where it may take banks months. That’s one of the values we bring and one of the things that differentiates us.”

“Scope has been recognised by central bankers and regulators as a unique service that fosters ethical trading and healthy markets in a collaborative spirit with industry clients defining previously nebulous principles,” concludes Crouch.

Ideal Prediction was voted best surveillance provider for FX at the 2020 FX Markets e-FX Awards.

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