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  • James Wartho

Staying on top of financial crime in Trading with Fifth Logic iQ

Updated: Apr 5

The world of finance has long had its fair share of crime, corruption, and fraud. From the spectacular falls of global Ponzi schemes to low-level embezzlement and insider trading, the industry is incredibly vulnerable to these illegal practices.

And it is easy to see why.

With trillions of dollars flying around global markets every day, the potential for financial misconduct or financial crime is always present. Regulators and law enforcement are constantly looking to enhance their trade surveillance to reduce financial crime and misconduct, protecting the integrity of the markets and the participants.

In recent times, few financial crimes have shaken the world as much as the LIBOR (London Interbank Offered Rate) scandal that unfolded from 2007 to 2013. A highly publicised financial crime, involving bankers at several major financial institutions colluding with each other to manipulate LIBOR, one of the world’s most influential benchmark interest rates.

The flow on effect impacted almost every loan on the planet and defrauded millions of large and small scale participants in the financial system. To stop LIBOR being manipulated again, the financial system is being re-wired from the ground up at an enormous cost to the industry and therefore the consumers. Surely there is a better way to maintain the integrity of financial markets.

So, with financial crime and misconduct in trading desks (and beyond) increasingly under the microscope from government regulators and law enforcement agencies, how can these organisations keep track of their trading activities in real-time and ensure they aren’t vulnerable to financial misconduct and crime?

Fifth Logic iQ (FLiQ) meets these challenges head on. With real-time data analysis across an unlimited number of communication channels, tools such as FLiQ facilitate the monitoring of trading activity and identification of suspicious behaviour as it occurs.

Challenges of detecting financial crime in trading environments

1. Fast moving and sophisticated markets

Trading markets are at the more complex end of financial products. When markets are fast, trading activities move quickly with many client and trading activities simultaneously working across multiple fronts. Trading businesses struggle to monitor all trading and communication channels in real time. Major investment banks still monitor calls on a random sample basis with compliance listening in. Correlating this call monitoring with other chat channels and trades, booked in real time, is near impossible. Financial crime often goes undiscovered and is often only highlighted weeks, months or years later.

2. Broad and disparate data

Anyone who has spent time in trading floors knows that communication is intense with intercoms, phones, mobiles, trading platforms and terminals all buzzing during fast market conditions. Fraudulent behaviour occurs across all these platforms and over extended time periods. To detect fraud, these platforms need to be monitored and correlations built across the varying data sets. Most trading businesses struggle to piece this picture together, often only able to do this in hindsight when they know fraudulent behaviour has occurred.

3. Inaccessible data

Most landline calls are recorded on trading floors. However, many trading floors record to tape drives which are inaccessible. Mobile calls are increasingly recorded but access is difficult. Although many market activities are digitised, much business is still negotiated and agreed via voice and messaging channels. This is unstructured data and making it accessible and correlating it with customer and trade data to build a complete picture is a major challenge. In summary, the challenge of monitoring trader activity across trading systems, terminals, voice channels and chat channels to create a picture of activity, over time, to detect fraud is a major challenge for all market participants. To do this across all trading activities and in real time has not been possible for most trading businesses and investment banks, yet this is what needs to be achieved to give broad protection against financial crime in trading markets.

Advantages of choosing FLiQ

1. Real time ingestion and processing of voice data

FLiQ can ingest real time voice data across voice channels including mobile, landline, and intercom. Using advanced Artificial Intelligence (AI) and Natural Language Processing (NLP), FLiQ can be trained to understand trading language and terminology. FLiQ can spot unusual phrases in conversations, missing disclaimers, financial advice where it should not be given and much more. Furthermore, FLiQ has the potential to do this across most of your trading conversations in real time, giving you broad coverage and identifying fraud as it happens.

2. Correlation of trade data, voice data and chat data

FLiQ uses modern data fabric technology to ingest many data types in real time. In one test, FLiQ ingested data from order books, trading platforms and voice, and correlated the data in real time to produce a holistic view of trader activity.

With a comprehensive view, business rules and AI were used to look for fraudulent activity and other compliance issues, such as trade entry error where the trade called in over the phone did not match the manually keyed order.

3. Speed of implementation – return on investment

Data warehouses have traditionally been the approach to combining data from many systems to create a consolidated view. These systems are often gargantuan and take many months or years to implement. Even when implemented, they are often brittle in nature and take many months to change.

FLiQs use of data fabrics speeds up the implementation many times over, often with business value delivered in weeks not years. This dramatically reduces the cost of implementation and ongoing changes resulting in a healthy ROI for the platform.

Prioritise reducing risk in your trading desk

Reducing the risk of trading and financial crime in your organisation in an efficient manner should be a priority. Fifth Logic iQ ties together interactions to identify patterns, suspicious behaviour, and highlights unseen opportunities.

The Fifth Logic team now have three more spaces on the iQ Accelerator program for organisations interested in piloting a powerful engine with infinite data processing capabilities. Check out the details and register for the iQ Accelerator program today.

*January 2024 update: Fifth Logic iQ is now FinTalkr™. Learn more about what this means by reading about it here.

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