by Agency Staff,
2015-04-12 11:13:30.0
WALL Street traders are already threatened by computers that can do their jobs faster and cheaper. Now the humans of finance have something else to worry about: algorithms that make sure they behave.
JPMorgan Chase, which has racked up more than $36-billion (about R425-billion) in legal bills since the 2008 financial crisis, was rolling out a program to identify rogue employees before they go astray, said Sally Dewar, head of regulatory affairs for Europe, who is overseeing the project.
Dozens of inputs, including whether employees skip compliance classes, violate personal trading rules or breach market-risk limits, will be fed into the software.
Dewar said: “It’s very difficult for a business head to take what could be hundreds of data points and start to draw any themes about a particular desk or trader. The idea is to refine those data points to help predict patterns of behaviour.”
The surveillance program, which is being tested in the trading business and will be operational in the global investment banking and asset management divisions by 2016, offers a glimpse of Wall Street’s future.
An industry reeling from billions of dollars in fines for the actions of employees who rigged markets, cheated clients and aided criminals is turning to technology to police itself better.
At New York-based JPMorgan, the world’s biggest investment bank by revenue, the push is the result of government probes into fraudulent mortgage-bond sales; the $6.2-billion London Whale trading loss; services provided to Ponzi scheme operator Bernie Madoff and the rigging of currency and energy markets.
The company has hired 2 500 compliance workers and spent $730-million in the past three years to improve operations. Job postings show it is building a surveillance unit to monitor electronic and telephone communication in the investment bank.
E-mails, chats and telephone transcripts could be analysed electronically to determine if employees were trying to collude or conceal intentions, said Tim Estes, CEO of Digital Reasoning Systems.
“We’re taking technology that was built for counterterrorism and using it against human language, because that’s where intentions are shown,” said Estes, whose company has Goldman Sachs and Credit Suisse as clients and investors, but not JPMorgan. “If you want to be proactive, you have to get people before they act.”
Billions of e-mails flow through Wall Street firms annually.
But technology that predicts behaviour raises ethical questions.
“What they’re trying to do is forecast human behaviour,” said Mark Williams, a former Federal Reserve bank examiner who is now a lecturer at Boston University’s Questrom School of Business.
“Policing intentions can be a slippery slope. Do people get a scarlet letter for something they have yet to do?” Care would be taken to strike the right balance in monitoring employees at JPMorgan, said Dewar, a former UK regulator.
The bank would not describe all the inputs being used for its predictive program, or what steps would be taken if concerns are raised about an employee.
A memo from executives in February urged employees to flag compliance concerns to managers and reminded them that scandals hurt bonuses for everyone. Dedicated whistle-blower phone lines and e-mail addresses were created for workers to raise issues anonymously.
The program was hinted at in a report put on the bank’s website in December, “How we do Business”, signed by CEO Jamie Dimon. It outlines how the firm is improving compliance, including starting a global communications surveillance program.
“We recognised that enhancing market conduct would require using multiple preventive and detective levers in a co-ordinated way,” JPMorgan said. — Bloomberg
• This article was first published in Sunday Times: Business Times
Wall Street. Picture: REUTERS
WALL Street traders are already threatened by computers that can do their jobs faster and cheaper. Now the humans of finance have something else to worry about: algorithms that make sure they behave.
JPMorgan Chase, which has racked up more than $36-billion (about R425-billion) in legal bills since the 2008 financial crisis, was rolling out a program to identify rogue employees before they go astray, said Sally Dewar, head of regulatory affairs for Europe, who is overseeing the project.
Dozens of inputs, including whether employees skip compliance classes, violate personal trading rules or breach market-risk limits, will be fed into the software.
Dewar said: “It’s very difficult for a business head to take what could be hundreds of data points and start to draw any themes about a particular desk or trader. The idea is to refine those data points to help predict patterns of behaviour.”
The surveillance program, which is being tested in the trading business and will be operational in the global investment banking and asset management divisions by 2016, offers a glimpse of Wall Street’s future.
An industry reeling from billions of dollars in fines for the actions of employees who rigged markets, cheated clients and aided criminals is turning to technology to police itself better.
At New York-based JPMorgan, the world’s biggest investment bank by revenue, the push is the result of government probes into fraudulent mortgage-bond sales; the $6.2-billion London Whale trading loss; services provided to Ponzi scheme operator Bernie Madoff and the rigging of currency and energy markets.
The company has hired 2 500 compliance workers and spent $730-million in the past three years to improve operations. Job postings show it is building a surveillance unit to monitor electronic and telephone communication in the investment bank.
E-mails, chats and telephone transcripts could be analysed electronically to determine if employees were trying to collude or conceal intentions, said Tim Estes, CEO of Digital Reasoning Systems.
“We’re taking technology that was built for counterterrorism and using it against human language, because that’s where intentions are shown,” said Estes, whose company has Goldman Sachs and Credit Suisse as clients and investors, but not JPMorgan. “If you want to be proactive, you have to get people before they act.”
Billions of e-mails flow through Wall Street firms annually.
But technology that predicts behaviour raises ethical questions.
“What they’re trying to do is forecast human behaviour,” said Mark Williams, a former Federal Reserve bank examiner who is now a lecturer at Boston University’s Questrom School of Business.
“Policing intentions can be a slippery slope. Do people get a scarlet letter for something they have yet to do?” Care would be taken to strike the right balance in monitoring employees at JPMorgan, said Dewar, a former UK regulator.
The bank would not describe all the inputs being used for its predictive program, or what steps would be taken if concerns are raised about an employee.
A memo from executives in February urged employees to flag compliance concerns to managers and reminded them that scandals hurt bonuses for everyone. Dedicated whistle-blower phone lines and e-mail addresses were created for workers to raise issues anonymously.
The program was hinted at in a report put on the bank’s website in December, “How we do Business”, signed by CEO Jamie Dimon. It outlines how the firm is improving compliance, including starting a global communications surveillance program.
“We recognised that enhancing market conduct would require using multiple preventive and detective levers in a co-ordinated way,” JPMorgan said. — Bloomberg
• This article was first published in Sunday Times: Business Times
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