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Storing data is essential, but with a huge number of electronic communications channels being used today, there is a greater danger of illegal behavior going unnoticed if archives fail to proactively monitor for potential issues. Shield’s Oliver Bradford examines the need for intelligent search tools and proactive automated systems to cope with regulatory demands in today’s remote working environment.
The archiving of records long predates the digital world, existing since people began storing information through written words. Despite its long history, passively storing data simply isn’t enough when it comes to the fast-paced world of modern finance. If you are not proactively monitoring for potential issues beyond meeting regulatory requirements, your archive is effectively useless.
Falling Through the Net
A recent real-world example has brought this sharply into focus. In September 2020, the U.K. Financial Conduct Authority (FCA) received the disappointing news that despite its efforts (and a 20-month wait), former banker Konstantin Vishnyak had been found not guilty of committing insider trading offenses, despite an extensive investigation into suspicious transactions. Interestingly, Vishnyak deleted WhatsApp on his personal iPhone in front of arresting officers, along with any e-comms associated with it, thus destroying any potential evidence.
This case underscores the importance of recognizing the new channels traders use, along with the need to properly record and surveil these, and having clearly defined policies in place regarding electronic communications (e-comms). There is a growing imperative to adopt technology solutions that can adequately surveil all e-comms and the associated archived data to identify, capture and report suspected market abuse.
Reliance on Electronic Communications
A report by Forbes in 2018 showed that 85 percent of bankers used social media and e-comms apps daily to interact with their clients, and at the same time, there was a seriously concerning 423 percent year-over-year increase in the total amount of fines levied for noncompliance in reporting. Undoubtedly, since that report (and specifically due to the global 2020 pandemic, which has mandated unprecedented levels of home working), the usage of e-comms has increased substantially – particularly WhatsApp and collaboration tools.
In response to the rise of e-comms, the U.S. Financial Industry Regulatory Authority (FINRA) updated its guidelines in 2017 (a little after the European MAR regulation in 2016). However, despite an estimated 200+ regulatory enhancements, updates and addenda each day globally, the financial services sector and the agencies governing its activity remain woefully ill-prepared to manage the challenges related to monitoring, detecting, capturing, analyzing and reporting market abuse on e-comms solutions. While archiving remains popular, most firms remain unable to adhere to those regulations and cannot yet proactively or effectively detect market abuse fraud, despite the rollout of the new guidelines.
Needle in a Haystack
Comprehensive archiving does not guarantee the detection of potential issues. Having a system in place to archive, retain and meet the basic regulatory requirements does not address the nuances around the content, context and profile of the person communicating (such as the subtlety of an emoji or a mixed language reference), and these remain difficult to interpret. Many current solutions still only focus on isolated keywords or phrases, which cannot extract the contextual relevance, so these solutions therefore fail to detect fraudulent behavior.
Despite the challenges of the COVID-19 pandemic, the U.K. Financial Conduct Authority (FCA) has made it clear that all financial firms must step up their efforts to monitor bankers and brokers for prevention (which must identify an intention to commit market abuse before it happens), as well as the detection of market abuse that has been committed. With every sign that home working is likely to continue in the future (even beyond the current restrictions), stricter employee monitoring will continue to be a significant challenge for many firms, particularly with the ever-expanding variety and choice of e-comms on offer.
Undoubtedly, lockdown rules and quarantines have increased the temptation of committing financial fraud and made the job of compliance officers considerably harder – which legacy archiving platforms simply cannot deal with. While archiving critical e-comms and related transaction data is a regulatory requirement (and standard practice) for all financial firms, it simply is not true surveillance.
When archived data has no enrichment or correlation, specific details can be very hard to find. False positives are another common problem, and the cost of searching and exporting relevant data can be prohibitively high.
Intelligent Surveillance
The best approach is to use artificial intelligence (AI) technology that can interpret e-comms in real-time, before those messages are vanquished to the archives. AI solutions can also readily scan archived content using techniques such as NLP, to identify contextually relevant examples of noncompliance, helping you find what you need faster, and with a smarter approach enabled through automation. In fact, in some cases, AI-based interpretation of the contextual nuance is so sophisticated that the technology can spotlight the potential for market abuse even before it happens!
This intelligent alerting layer can easily be added to archiving systems to unlock the value of the stored data.
Following cases such as that of Konstantin Vishnyak, financial regulatory agencies will look to tighten the net and pursue charges against all persons and organizations suspected of and proven to be guilty of tampering with or deleting critical evidence – including e-comms – that is material to a financial investigation.
In today’s remote working environment archiving is just not sufficient. It lacks an automated AI system for finding data you know you need, and even more importantly, it lacks proactive alerting on communications to tell you what you need to know. Storing important data is all well and good, but if you cannot use it effectively, it becomes worthless.
The onus is now on financial firms to embrace an automated solution that successfully captures, enriches and surveils encrypted messages like those exchanged on WhatsApp, even if they’ve been archived. In an evolving world where operational efficiency, automation and user experience are driving innovation and transformation, making more out of existing data is essential for all organizations.
Shield automates and orchestrates the complete eComms compliance lifecycle, delivering all elements of capture, correlation, data enrichment, analytics, proactive and preventative detection. Featuring two distinct functions – Compliance Data Management and Proactive Surveillance – Shield’s solution empowers numerous functions within regulated organisations, from departments such as surveillance and monitoring, risk and governance, forensic and control, all the way through to conduct and management.
A truly open platform, Shield was built to put an end to compliance data silos and complicated proprietary platforms. Our open integration approach enables an organisation to connect to a wide range of electronic communications platforms through our library of pre-integrated connectors, whilst we normalize, enrich the data, and allow for connectivity to other platforms as well.
By harnessing the power of AI, Shield’s platform utilises its non-disruptive technology and unique capabilities, including FCR (Financial Context Recognition), Alert Scoring, and NLP. It is also a Cross Regulation Platform, enabling regulated firms to meet different regulatory use cases and objectives such as: record keeping and retention, completeness and reconciliation, eDiscovery and advanced search, investigations, and surveillance.
For more information please visit: www.shieldfc.com
Oliver Bradford is the Sales Director EMEA for 
