Trade surveillance
How to prepare for regulatory audits
Mike Channing
•
Head of Sales, UK and EMEA
October 28, 2025
When a regulator announces a planned audit, many financial firms instinctively scramble. This is because teams rush to locate scattered records, compile data from siloed systems, and piece together evidence of compliance after the fact. This reactive approach not only creates stress but also significantly increases the risk of gaps, inconsistencies, or errors—any of which can trigger enforcement action, fines, or worse.
However, the firms that emerge from audits unscathed are rarely those with bigger budgets or more compliance staff. They’re the ones that treat audit-readiness as a continuous process, not a last-minute scramble. This means having transparent systems, structured data, and documented workflows that tell a clear, defensible story of compliance.
As the global regulatory landscape intensifies, the expectation on firms isn’t simply to comply but to prove they comply. And with audits becoming more frequent, more data-driven, and increasingly cross-border, the difference between scrambling and succeeding often comes down to preparation.
In this blog, we explore what makes audits so challenging, what regulators are really looking for, and how firms can take practical steps to ensure they’re always ready, not just when an audit is on the horizon, but 365 days a year.
Regulators such as the Financial Conduct Authority (FCA), ESMA, the SEC, and MAS aren’t just checking boxes during compliance audits. They assess the substance, integrity, and defensibility of a firm’s compliance framework. While exact expectations vary by jurisdiction, several themes recur across major regulatory bodies, particularly in the current environment where market complexity, digital transformation, and cross-border operations are increasing scrutiny on all fronts.
Regulators want to see a clear chain of evidence: from how data is captured and processed, through to the decisions made and actions taken. If a firm flags a trade, or doesn’t flag one, there should be an auditable trail explaining why.
Compliance should not depend on individual knowledge or ad hoc procedures. Regulators look for documented, standardised workflows that prove the same rules are being applied consistently across desks, regions, and asset classes.
In the past, regulators may have accepted reactive compliance models. Now, they expect firms to be identifying risks before they escalate and to demonstrate that monitoring systems are tuned to real-world behaviour, not just theoretical scenarios.
Reporting accuracy remains one of the most common areas of audit focus. Whether it’s MiFIR transaction reporting, EMIR submissions, or best execution disclosures, regulators expect data to be complete, timely, and verifiable.
Increasingly, regulators assess how compliance is embedded across the business. They look at governance structures, escalation procedures, training records, and whether senior management is actively engaged in oversight. Under SMCR, this extends to individual accountability.
As regulations evolve (e.g., UK MAR adjustments, EMIR Refit, or the FCA’s DP24/2 proposals), regulators want to see evidence that firms are capable of responding quickly and effectively. A rigid, outdated system raises red flags.
A strong compliance framework is not about having the most advanced technology. It’s about having the right foundations in place: the right people, processes, and tools working together in a way that’s transparent, consistent, and defensible.
Every effective compliance programme begins with a clear governance structure. This includes defined roles and responsibilities for compliance staff, senior management oversight and accountability (particularly under SMCR), documented escalation procedures, and regular reviews and updates to policies in line with regulatory changes. Without clear governance, compliance becomes reactive and personality-dependent; neither of which will withstand audit scrutiny.
It sounds basic, but many firms still lack a centralised view of which regulations apply to which activities, especially when operating across multiple jurisdictions. Mapping obligations across desks, asset classes, and regions helps ensure nothing is missed and makes it significantly easier to demonstrate coverage during an audit.
Every compliance process, from trade surveillance escalation to transaction report submission, should be documented, repeatable, and reviewable. Key elements include step-by-step procedure manuals, change logs and version histories, clear ownership of each process, and training records showing staff understand and follow the procedures.
One of the most common causes of audit failure is data fragmentation. Firms that rely on disconnected tools, spreadsheets, or manual hand-offs between systems struggle to present a coherent picture of their compliance activities. Integrating systems into a unified compliance platform helps ensure data is consistent across reporting, monitoring, and record-keeping. Alerts and surveillance outputs feed directly into audit-ready reporting, and changes are logged automatically, reducing the risk of human error or omission.
Regulators increasingly expect firms to test their own compliance controls regularly, not just when an audit is scheduled. This includes scenario testing to simulate potential breaches or market events, periodic reviews of alert thresholds and calibration logic, and internal audits and compliance assurance exercises. Embedding testing into day-to-day operations means issues are caught early, before a regulator points them out.
Technology alone doesn’t make a firm audit-ready. However, the right tools, deployed thoughtfully, can dramatically reduce friction, improve accuracy, and provide the kind of defensible evidence regulators now expect.
Manual data handling is one of the biggest risks during an audit. Automation removes the need for error-prone spreadsheet work, ensures data from multiple sources (OMS, EMS, comms, market data) is consolidated in one place, and timestamps and logs every action, creating a reliable audit trail.
Regulators want to see that firms are identifying risks as they emerge, not days or weeks later. Real-time surveillance capabilities, particularly those that use contextual analysis, demonstrate proactive compliance and reduce the chance of a missed or delayed escalation being flagged in an audit.
Static, one-size-fits-all alert thresholds are increasingly seen as a weakness. Modern surveillance tools that allow dynamic calibration, adjusting thresholds based on market conditions, trade volume, or asset class, show regulators that the firm’s systems are fit for purpose and actively maintained.
Whether it’s transaction reporting under MiFIR/EMIR, best execution under RTS 27/28, or suspicious transaction and order reports (STORs) under MAR, regulatory reporting should be tightly integrated with your surveillance and data systems. Disconnected reporting processes are a common source of audit findings.
Cloud-based platforms offer a number of audit-friendly benefits: centralised, secure storage of compliance data, scalability to accommodate increasing data volumes without infrastructure overhauls, and easier rollout of regulatory updates across the firm. The FCA and PRA have both signalled acceptance of cloud-based compliance tools, provided firms meet their outsourcing and resilience obligations.
Even well-resourced firms can be caught off-guard during a regulatory audit. Many of the most common findings aren’t the result of a fundamental compliance failure, instead, they stem from gaps in documentation, process discipline, or system integration that might seem minor day to day but become significant under scrutiny.
Regulators expect a full, time-stamped audit trail for every compliance action, including monitoring, escalation, reporting, and remediation. If records are incomplete, inconsistent across departments, or reliant on manual entry, it becomes far harder to demonstrate that controls are actually working. Even small gaps, such as missing escalation notes or undocumented threshold changes, can raise red flags.
Few things concern regulators more than a firm that identifies a risk but fails to act. If internal reviews or surveillance alerts have flagged issues that were not investigated, escalated, or remediated, it paints a picture of complacency, which is particularly dangerous under the SMCR framework.
Surveillance systems that generate excessive false positives suggest the system is not tuned to the firm’s actual risk profile, while too few alerts may indicate blind spots. Both extremes attract regulatory attention, and firms are increasingly expected to demonstrate how and why their alerting parameters are set the way they are.
Regulations evolve, as do markets, products, and trading behaviours. If a firm’s compliance policies haven’t been updated to reflect these changes, it signals a lack of engagement with the regulatory environment. Regulators often check the date and version history of compliance manuals and procedures as part of their review.
When surveillance, reporting, and communications monitoring tools don’t integrate, auditors are likely to find discrepancies. For example, a trade may be flagged in surveillance but not reflected in regulatory reporting, or a communication may be captured but not linked to the relevant trade or alert. These disconnects can be difficult to explain.
Regulators increasingly expect compliance to be embedded at board level, not just delegated to a compliance officer. Under the SMCR, individuals in senior management functions are expected to be actively aware of, and engaged in, compliance oversight. Auditors will often look at board minutes, training records, and escalation logs to assess this.
A regulatory audit doesn’t end when the auditors leave or the final report is issued. In fact, the actions a firm takes after an audit can be just as important as the preparation. How a firm responds to findings, communicates changes, and embeds improvements often shapes the regulator’s view of its compliance culture going forward.
Even if the audit result is broadly positive, there will usually be observations, recommendations, or minor findings. These should be reviewed carefully across compliance, operations, and technology teams to understand the root cause, not just the surface issue. A pattern of recurring minor findings, for example, may signal a deeper systemic problem that needs addressing.
Where issues are identified, firms should develop a formal remediation plan that includes clear ownership of each item, realistic but firm deadlines, and milestones for tracking progress. Regulators often follow up on audit findings, and a lack of visible progress between audits is a significant risk factor.
If an audit highlights gaps in documentation, outdated procedures, or system limitations, these should be addressed quickly. Delays in implementing fixes, especially those that were flagged by the firm’s own internal audits, can lead to harsher scrutiny in future reviews.
Bringing together stakeholders from compliance, risk, IT, and front office for a structured debrief can uncover process improvements that go beyond the audit findings themselves. These sessions help build a culture of continuous improvement, which regulators view favourably.
Once remediation actions are implemented, they should be tested to ensure they’re working as intended. This could involve re-running surveillance scenarios, conducting sample audits of updated processes, or reviewing updated reports against prior submissions.
Audit readiness isn’t a sprint, it’s a continuous discipline. The firms that consistently pass regulatory audits are not necessarily the biggest or the best-funded; they are the ones that treat compliance as a living, embedded function, not an afterthought. From transparent governance and standardised workflows to integrated systems and proactive monitoring, every layer of preparation makes a difference when auditors examine your controls.
With regulators becoming more data-driven, cross-border, and outcome-focused, the bar for demonstrating compliance continues to rise. However, this should not be viewed as a burden alone. A firm that is genuinely audit-ready is also more efficient, more resilient, and better positioned to adapt when regulations change.
The message is clear: build compliance into the fabric of your operations, and audits become a validation of the work you’re already doing, not a source of anxiety.
If you’re ready to strengthen your audit-readiness, streamline your compliance infrastructure, or explore how an integrated platform can help your firm stay ahead of regulatory expectations, contact us today.
