Solutions. Take Communication Surveillance to the next level

Transcription

1 CCustomer mmunication Interaction Intelligence Management Solutions Take Communication Surveillance to the next level

2 The Challenges of Compliance and preventing Market Abuse The financial services industry participants operate in an increasingly complex regulatory landscape which requires strategic innovations to address evolving complex requirements. Given the pervasiveness of digital communications and the complexity of the human language used within them, banks require more advanced methodologies for detection and prevention of operational and business risks. While existing rule based engines continue to be needed, they are not capable uncovering unknown threats in today s fast paced capital markets. Primary challenges The industry faces three primary challenges: Markets Participants Regulators Wholesale trading markets are facing misconduct through collusive activity among participants Market participants failed to detect potential instances of insider dealing, market manipulation and other market conduct risk Regulators have directed market participants to implement more robust controls and procedures to identify and document issues proactively 2

3 Regulations to prevent Market Abuse With regards to financial communications compliance there has been several new regulations. MAR (effective since 3 July 2016) and MiFID II (effective as of 3 January 2018), have significantly broadened the scope of employees, asset classes, communication channels, and devices that need to be recorded and monitored, while also mandating proof of compliance and imposing escalating fines for compliance lapses. Under MiFID II, all communications that are intended to lead to a transaction will need to be recorded and analyzed, rather than the previous, narrower mandate of client orders. MiFID II MAR Article 16 (6) - An investment firm shall arrange for records to be kept of all services, activities and transactions undertaken by it which shall be sufficient to enable the competent authority to fulfil its supervisory tasks and to perform the enforcement actions under this Directive, Regulation (EU) No 600/2014, Directive 2014/57/EU and Regulation (EU) No 596/2014, and in particular to ascertain that the investment firm has complied with all obligations including those with respect to clients or potential clients and to the integrity of the market. Art 16 (7) - Recording of telephone conversations or electronic communications relating to dealing on own account (PAD) and client order services. Firms must be able to reconstruct a trade from all the constituent parts of the deal as and when requested. Annex II Section 1, Intent - Firms will need to prevent Fraudulent Trading Practices and Intent. Firms will need to record to identify possible fraudulent behavior and any failure to reproduce requested data will result in penalties. Annex II Section 1, Intent - Firms are required to have programs to detect behavior that may have relevance in terms of fraudulent trading practices and intent. If requested, evidence must be readily available within 72 hours. Article 3 - Benchmark Setters - Those firms that have a submitter to establish a rate now fall under increased MiFID II supervision. Monitoring and recording of communications with other submitters, within the same firm, or others, is now required. Article 3 - Benchmark Setters - Firms must have programs to be able to detect behavior that may have relevance in terms of setting abuse. Evidence must be readily available to regulatory investigation within 72 hours. 3

4 The complexity of analyzing multiple non-structured data sources Due to the unstructured nature of verbal and written communication, consolidating, classifying and analyzing data from numerous data sources and formats is no easy feat. While the NICE Communications Surveillance data platform is a leader in achieving this, requirements like trade reconstruction have added pressure in this already difficult task. Ad-hoc and scheduled investigations require intelligence regarding individual s utilization of communication channels and a next level understanding of the context in these communications. Both Dodd Fran and MAR require the reconstruction of the full chain of information flow and the reconstructed data to be in a presentable manner within 72 hours. The latest capabilities in natural language processing can now give the compliance industry added tools to expedite the reconstruction and investigation processes across all communication channels. Incorporate in order to ridge a global scope and reach While there are a number of Machine Learning based solutions in the market, embarking on such projects often requires extensive business resource commitments and high costs of data integration. The compliance market requires analytics solutions to be deployed swiftly leveraging existing data repositories. In doing so it is required that advanced analytics solutions build from current surveillance efforts and enhance the investigations that stem from them. 4

5 The need to uncover unknown risks The key driver for any surveillance program is to avoid the risks and consequences of violations committed by market participants in their respective organizations. While the compliance practice has become sophisticated in its approaches to risk prevention and mitigation, today s detection mechanisms rely on rules that look for specific known patterns of behavior. However, just as the industry and trading practices evolve, so should the detection rules driving the surveillance processes. Advances in data processing and analysis such as unsupervised machine learning techniques, allow for identification of abnormal patterns. Applied to communications, financial institutions demand a more comprehensive understanding in changes of communication networks of the market participants, and how these changes can be used for the identification of unknown threats. Understanding Entity Level Events Traditionally surveillance tools have focused on event level detection. This translates to looking at communication, trade and other events in isolation instead of getting the full picture for a trader or other monitored user in the financial markets. Aggregating the events based on the entity of interest allows for additional insights that may supplement ongoing investigations. Uncovering new communication patterns The increasing sophistication of the fraudulent behavior experienced recently in the financial markets requires not only understanding the individuals to themselves and others but spotting changes in the way they behave. Elements such as the distribution or usage of communication channels used, the frequency of specific channels at particular times of the day such as fixing, closing or other time sensitive periods are now the norm in surveillance programs. Automating this detection rules applied to the full trader population requires significant manpower. 5

6 C mmunication Intelligence Supplemental Machine Learning Powered Technology Communication Intelligence utilizes machine learning, statistical techniques and modern visualization technologies to increase the efficiency and effectiveness of compliance programs. The key benefits of this improvement are made possible by complementing existing risk detection models with new analytics results that identify previously unknown anomalous patterns and behaviors. The following features capture the core functionality of this development: Automate benchmark setting review process and any other time period sensitive communication review processes Continuously Re-analyze past communications along new ones in the context of its participants deviation from historical patterns Increase granularity of monitored users communication flows and communication networks within departments and outside the organization Identify and mitigate potential information breaches of intellectual property or other confidential and market price sensitive information. 6

7 Paving the path for Artificial Intelligence in Compliance Aggregate Analyze Act The Expanding Role of Machine Learning When it comes to financial communications compliance, Machine Learning (ML) technologies can truly improve the compliance process, but only if they fit into the firm s current workflow. True AI in financial compliance is yet too complex, but ML can enhance the compliance team s view of monitored users, help to detect financial communications compliance issues, and if implemented and applied correctly, facilitate analyst decision-making. The Communication Intelligence solution as part of NICE Communication Surveillance is made up of three key components: Aggregate: A next generation data platform for aggregating historical and current communications data from NICE Smart Index Analyze: An analytics engine that allows to deploy out-of-the box as well as customized client specific machine learning models Act: A Visualization layer for the analytics model output within the Communications Surveillance application. The Dashboards will have the capabilities of drilling down into the different behavioral profile aggregations and the underlying communications for review and investigation. 7

8 Aggregate Analyze Act All Communications Voice Chat Social Media RTI Document CRM OMS Index Analyze NEW Ingestion Linguistics Universal Index Analytics Communication Intelligence Supervision Investigate NEW Explore Observe Review Investigate Dashboard Reports Visualization 8

9 Addition to Communicati n Surveillance The daily volume of communications continually increases as the methods expand beyond voice, and chat applications to social networking sites. The time taken by compliance surveillance teams to review all these communications has increased in recent years and this trend will continue. Compliance Officers are on the front lines, working day in day out to prevent people from cutting corners, stepping over the line, and violating securities law and regulations. They are responsible for the surveillance of transactions across the trading floor. How do you robustly monitor all interactions (voice, , instant messaging, etc.) for risk, carry out internal investigations and in addition meet external controls and reporting requirements without having a detrimental impact on performance? Two additions to the NICE Communication Surveillance solution can help Compliance Officers to quickly identify potential risks. The first additional module is in the Analyze layer - Machine Learning capabilities are used to monitor all communications and compare those to historical values. The second addition is in the Application layer where a Visualization module can graphically display the results of the Intelligence findings. 9

10 Compliance Intelligence Communication Intelligence is integrated in NICE Actimize Risk Case Manager, and combined with Holistic Behavioral Analytics provides a holistic view on risk and compliance. For more information: 10

11 Uncover the unknown Risks Holistic Surveillance A holistic approach fundamentally transforms compliance by providing the fastest, most precise identification and mitigation of compliance risk. This can be achieved by integrating markets and communications surveillance to generate more accurate alerts. NICE Holistic Surveillance is the first to enable a more sophisticated compliance process one that is more flexible, more dynamic, more intelligent, and more efficient. While most solutions are either at the order and/or execution level, or at the communications surveillance level, the Holistic Surveillance framework reduces the gaps between markets and communications by integrating both NICE Communication Surveillance and NICE Actimize Trade Surveillance in a single view. It helps financial firms overcome the daunting challenge of compliance integration, standardization and coordination. Actimize Enterprise Risk Case Manager The NICE Actimize Enterprise Risk Case Manager (ERCM) provides you with the actionable intelligence you need to gain a holistic view of risk. With the ability to consolidate information from existing detection systems into a single operational tool, we provide you unparalleled visibility across multiple lines of business, channels, products, and regions. Our single, user-friendly application ingests these diverse information flows and th e resulting output allows you to reduce your costs and to mitigate your risk by managing your personnel more wisely, connecting the dots in ways you are not currently doing, and consolidating automating manual processes. 11

12 Financial Communication Compliance Financial Communication Compliance is a significant business line within the NICE organization and focusses on delivering new technologies to facilitate regulatory requirements. NICE is a leader in the RegTech market, serving the largest financial services organizations globally. The solutions respond to an increasing demand in the financial services market, where regulatory compliance is on the rise. NICE is focused on the communication compliance market and has together with NICE Actimize an unmatched presence in the domain of Holistic Surveillance. More info on About NICE NICE (NASDAQ: NICE) is the worldwide leader of software solutions that deliver strategic insights by capturing and analyzing mass quantities of structured and unstructured data in real time from multiple sources, including, phone calls, mobile apps, s, chat, social media, and video. NICE solutions enable organizations to take the Next-Best-Action to improve customer experience and business results, ensure compliance, fight financial crime, and safeguard people and assets. NICE solutions are used by over 25,000 organizations in more than 150 countries, including over 80 of the Fortune 100 companies. More info on