In our latest webinar, Cloud9 brought together capital markets and compliance industry experts from Greenwich Associates and Behavox to discuss the role and future of technology in helping firms manage risk and optimize compliance.
- Kevin McPartland: Head of Market Structure and Technology Research at Greenwich Associates
- Erkin Adylov: CEO of Behavox
- German Soto-Sanchez: Global Head of Corporate Development at Cloud9 Technologies
The panelists contributed to an engaging conversation about the ability of new technologies to capture and analyze voice data to enhance the compliance process.
The audience, which consisted of brokers, traders, and IT managers from a number of top-tier financial institutions, also shared their views on compliance challenges at their firm and where they were most likely to implement innovation.
During the call, three key insights emerged:
- Voice is still crucial to relationship building in the capital markets, and it is now easier to regulate thanks to technological advances.
- Firms are most likely to implement cloud-related innovation for compliance and communications services.
- Transcription and trade reconstruction are the largest trade-related compliance challenges for the capital markets.
Voice and Trader Relationship Building
In a recent Greenwich Associates report, 70% of institutional investors confirmed that the level they trust their brokers impacts how they direct their trades.
Since the financial crisis, firms have been looking a lot more closely at managing reputation risk, even ranking it as high in importance as market and operational risk. Trader voice calls and human relationships still remain crucial in most financial markets, however trying to manage risk in that environment can be challenging, especially with the current regulatory mandates.
As Behavox CEO, Erkin Adylov explained, “Sell-side as well as buy-side are still utilizing phone calls to communicate with each other. That’s where there is a point of risk for a lot of institutions that are trying to capture voice, but also analyze and make sense of it from a reputational risk perspective.”
German Soto-Sanchez, Global Head of Corporate Business Development at Cloud9 Technologies elaborates: “Voice communications is crucial to the trading relationship for three reasons. First – voice is the most natural form of interaction. Second – when you deal with complex transactions, things like structured products, you require voice. Third – which is potentially the most important – developments in technology are now facilitating the ability to get much more out of the voice conversation than ever before.”
With new cloud-based as well as machine learning technologies, firms now have the ability to treat voice as data – facilitating a number of compliance functions like surveillance, biometrics, and transcription that can help mitigate risk and assist with the trade reconstruction requirements of regulations like MiFID II.
Firms Implement Cloud for Compliance and Communication Services
As the panelists discussed over the course of the webinar, banks seem to be increasingly more receptive to cloud technology as it becomes safer, improves their communications, and enhances their data-gathering capabilities for compliance. Rather than spending millions of dollars on back office investigators, lawyers, and intelligence officers to sort through and monitor trader communications, firms can now implement a software-based solution.
In a poll conducted during the webinar, 60% responded that they were most likely to implement cloud-related innovation at their firm for communications, with 40% most likely to implement for compliance.
“Thanks to the cloud we’re able to lower the total cost of ownership, deployment is much easier, you have inherent disaster recovery, and you have the ability to have enhanced surveillance, compliance, and analytics,” said Soto-Sanchez, outlining the many benefits of the cloud. “The regulatory authorities and the government are using the cloud also – if it’s good enough for the government and good enough for FINRA, then you can feel comfortable that it is safe and secure for your institution as well.”
For those firms who have not yet made the transition to the the cloud, Adylov says, “Seeing Goldman Sachs talking about how they use Amazon Web Services should be a pretty big clue about the importance of cloud for large financial institutions. As senior management starts recognizing the impact that the cloud is going to have on ROE, I think the industry is going to have to start shifting into the cloud, because that’s going to be a key competitive advantage.”
Transcription and Trade Reconstruction are a Challenge for Firms
Attendees surveyed during the webinar responded that transcription and trade reconstruction were the top trade-related compliance challenges for their firm, both tied at 44%. Much of this frustration is due to the the limitations of many solutions when it comes to the recording and analysis of trader voice.
“Under the existing legacy infrastructure, your ability to harness data is very limited, and we believe that’s unacceptable,” said Soto-Sanchez.
Due to recent developments in machine learning and voice recognition technology, complete and accurate trader voice transcription is becoming more of a reality.
“Off the shelf transcription solutions today are very ineffective for the kind of dialogue and vernacular that gets used in the conversations around trading, and existing speech APIs probably have accuracy rates in the teens,” explains Soto-Sanchez. “But the difficulty of transcription is starting to change now for a few reasons: Number 1 is the technology – firms have made significant investments in speech recognition technology. Number 2 – you have data. Specifically, the kind of data you need to develop the kind of sophisticated speech recognition models that you need for this space.”
Erkin went on to explain how compliance analytics platforms like Behavox are already changing the game when it comes to the type of data and information that can be extracted by voice. With a model that analyzes phone records, they detect suspicious activity, such as whispering, with a precision of 93%.
Adylov went on to explain the other benefits of trader voice analysis, “Not only can I tell you where there are instances of whispering, but I can also tell you if there is laughter on the phone call, if there is mention of high value keywords, if it an engaging conversation or not – it starts revealing a lot of useful information for also managing your salesforce or for retaining and training employees for HR purposes. The use cases for the data set are infinite and they are genuinely transformative for the organization.”
While it may sound like something out of science fiction, the technology and platforms already exist to help firms manage their reputation risk with enhanced trade reconstruction and analytics.
As regulatory mandates continue to change and evolve, the future will be defined by institutions that are leveraging this kind of modern technology and running their organization in a data-driven way.
Watch the recorded webinar here to listen to the full discussion.