The new development leverages large language models (LLM) to complement the role of a compliance officer through the provision of a full review of all trade surveillance alerts.

The development will allow compliance analysts at banks, brokers and investment managers to prioritise high-risk alerts, investigate them better and streamline the entire review process, which SteelEye claims to reduce investigation time by up to 90%.

The AI-powered solution provides alert scoring, prioritisation, and clear explanations of why alerts have been triggered. Recommendations for categorising and resolving alerts, complete with rationale, are also provided by the solution.

The new solution allows firms prioritise the most urgent alerts and manage their workload more intelligently, ultimately enhancing the efficiency and accuracy of surveillance functions.

SteelEye added that the tools also afford firms more time to consider where they need to strengthen their market surveillance capabilities on a broader level, with the Compliance CoPilot easily intergratable into SteelEye users’ existing workflow.

“There can be no downplaying the amount of strain compliance staff are under across the industry, with most teams overwhelmed by volumes of suspicious trading alerts to address each day,” said Matt Storey, chief product officer at SteelEye.

“The Compliance CoPilot will ensure compliance teams operate more effectively and proactively and should become the go-to sidekick for surveillance officers.”

The post SteelEye rolls out enhanced Compliance CoPilot tool appeared first on The TRADE.

Matt Smith

Matt Smith, chief executive of SteelEye, explained: ”Fortifying our presence in APAC underscores our commitment to providing unparalleled support to our clients in the region. By leveraging our extensive experience, SteelEye’s market-leading trade and communications surveillance solutions are ideally placed to enable financial firms operating in APAC to meet their regulatory obligations effectively.”

Read more: Fireside Friday with… SteelEye’s Matt Smith 

The move comes as the Monetary Authority of Singapore (MAS) continues to step up its enforcement actions across the industry. A recent SteelEye report found that just last year four banks and an insurer were fined in a bid to tackle money laundering and market misconduct. 

The region’s regulatory frameworks are known to be stringent, requiring financial institutions to comply with a range of market surveillance rules. 

Speaking to these unique challenges, SteelEye explained that the incorporation “enhances [its] ability to provide best-in-class communications and trade surveillance solutions to financial firms in APAC.”

The firm also further highlighted the importance of recognising the parallels between the regulatory environments in APAC, North America, and Europe. 

Lately, increased activity in Singapore from both the buy- and sell-side is seemingly positioning the country as the next major trading hub, with some key initiatives having been introduced to accelerate this continued shift.

“Singapore offers obvious benefits of getting established in Asia Pacific, putting down a small footprint, and then in a relatively low-impact way, hubbing to all of the other places that you might need to visit in the region,” Gerard Walsh, global head of capital markets client solutions at Northern Trust, previously told The TRADE.

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The report’s findings come as regulators up their enforcement actions related to communications and trade surveillance on both sides of the Atlantic. In 2022, the UK Financial Conduct Authority (FCA) issued almost triple the number of fines compared the previous year.

Last year, the SEC issued a record $6.4 billion in penalties, representing a 9% increase on the previous year. Fines totalling $1.1 billion were handed out to 16 Wall Street players for failing to monitor their workers or stepping in to prevent communications via unauthorised messaging apps (such as WhatsApp).

Just last week JP Morgan was ordered to pay $4 million civil monetary penalty to the SEC following the deletion of 47 million electronic communications. It was the latest in a series of orders issued by the SEC to the bank for failure to preserve records.

Previously, regulatory reporting was found to be the highest investment priority across firms, however a year on SteelEye’s 2023 Annual Compliance Health Check Report – which surveys more than 300 senior financial services compliance and risk professionals – has found that investment in communications and eComms surveillance is now the primary focus.

Of the respondents, 77% highlighted it as a main priority for 2023, while 25% specifically identified it as the top investment focus.

Matt Smith, chief executive of SteelEye stressed the importance of integrated surveillance as compliance departments of global financial institutions face increased pressure from regulatory bodies – which continues to be exacerbated by technological advancements.

“To meet regulatory demand, financial firms need to get better at detecting potential market manipulation.” he said.

“However, they won’t be able to do that if they continue to grapple with a proliferation of data, systems, and platforms. As stretched compliance teams confront a seemingly endless list of challenges, integrated surveillance will be critical in helping firms successfully navigate an increasingly complex and data-dependent regulatory environment.”

In terms of the key challenges facing firms, views differed between jurisdictions. In the UK, managing regulatory change and dealing with regulatory queries/investigations were both highlighted as the main hurdles by respondents – each highlighted by 42% of respondents.

Conversely, in Europe, the most common challenge was found to be keeping abreast with – and implementing – regulatory change (41%).

In the US, just over 41% confirmed that the struggle with using management information (MI) was the top issue, closely followed by managing market abuse and manipulation risk challenging (39%).

Despite the recent regulatory challenges, overall, the report found that 60% of firms believe regulators are easier to deal with compared to five years ago. According to SteelEye: “These positive attitudes towards the regulator could have to do with technological advancements, which are making compliance processes more streamlined and straightforward. Equally, it could be down to more concise and clearer communication from regulators.”

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SteelEye recently implemented a ChatGPT surveillance platform, how can AI play a role in trading compliance technology?

Legislation varies from region to region and by regulator to regulator but ultimately we can only improve our capabilities by incorporating AI into our strategies. I was sitting with a large European bank recently and they’re looking to replace their current communication surveillance and oversight capabilities. They’ve got an array of different systems. The future of surveillance and compliance technologies will be looking at how we rationalise the number of systems, but also how we make that workflow for the compliance professional better. You can do that through systematic rationalisations from vendor and platform perspective or you can do it from just making the day-to-day easier.

We launched ChatGPT in our system yesterday. The ability to press a button and that button to break down historic communications or even trading patterns and activity and simplify it in a way that you can digest it in minutes and then tell you the steps you should take next as well and then generate your response to the individuals, counterparties, internal and external in an automatic way – it’s profound. It’s quite scary but also exciting. It makes the whole journey for that compliance professional so much faster. In the old days, surveillance was really about reducing the false positives to make a surveillance professional more efficient. We can do that, but we can also massively reduce the time it takes to digest and understand information. This is what ChatGPT will do. This technology has only been around since November. I met with somebody a month ago and they asked what’s your strategy on ChatGPT? I thought oh my God, it’s only been around for two months. It’s fully incorporated in the product now.

It’s about simplifying the analytics of information. You can explain what’s going on in a certain chat room, what people talking about, what the thematic context of why that chat room exists. But do it in a way where I can look at a screen with a few paragraphs in each box that explains it and then tell me what I should do on the back of being able to break that information down. We’re enabling the users of the SteelEye platform to press a button and call out to the open API capability to do this.

We can provide those analytics and what that means is we can start to look at overall patterns of an individual, of an instrument, of a company. Imagine if you were able to press analyse Vodafone and it comes back and tells you everything that your company thematically has done with Vodafone, both from a trading activity perspective. Who your big counterparties are, where your risk and exposure is, who you’re trading with, what’s the overall tone and sentiment of how you interact with the counterparties?

Do you think regulators are encouraging the use of AI in compliance?

From a regulatory view, in terms of using this type of new age technology and the analytics that are available, they’re not vocally saying you should be using it. In some ways they’re saying you should be very cautious of it. You get technologies which in some cases a little too far into the AI side, but I really respect the innovation that’s coming out around the context of effectiveness of surveillance using AI. Explainability and operational efficiencies are not mutually exclusive of each other. The world is trying to get to a place where we’re starting to understand how these technologies work together. The regulator is definitely watching definitely seeing AI as being a core part of innovation. But regulators don’t want financial firms totally dependent on AI. They want a mix of computer and mix of human and this is where it really comes into how you bring these things together.

What role have the recent Wall Street WhatsApp fines played in this move towards AI in compliance?

There are a few components. Firms have been swinging from need to find ways of supervising and monitoring to just outright ban on technologies like WhatsApp. Those who have tried an outright ban will lose not from a compliance perspective, but from a business perspective, because this is how the world interacts. Whether it’s WhatsApp today or whatever it is in a year or two’s time, we’ll always have these technologies that people are using. The reason we use them is they make our lives easier; they make them more straightforward.

We’ve seen instances where big banks are being fined collectively around $2 billion where WhatsApp wasn’t being supervised. There’s technology available today to market participants to supervise this. Regulators are saying if firms are not going be in control of policy and it’s a prevalent thing in an organisation as a communication mechanism you will suffer the consequences of it. The regulators are showing is no longer OK to turn a blind eye or make excuses. As a result, this is where these fines come from. The UK regulator is different. They haven’t taken such a significant tone but that is one of the key differentiators between the US and the UK regulators. The US regulators don’t do a lot of pre-enforcement of systematic controls like the UK but when you do something wrong they hit you hard.

The key thing is we’re talking about huge amounts of information. Being able to pick up that an e-mail or a Bloomberg chat took place where somebody sent a communication trigger like “ping me on WhatsApp” and then go off and search all the plethora of communications is a way that we can use AI to start more in-depth searches. Beyond that you could then look at the trading patterns and see if something took place after that trigger an hour or two later e.g., a set of trades or a market move in a particular way. What did that person do or know? It could be nothing? It could be everything.

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According to SteelEye chief executive officer, Matt Smith, new analytics tools now being used by regulators are allowing them to take a more data-driven approach to monitoring and this has brought smaller firms under the spotlight.

However, new research published by the firm claims to have found that a third of small firms are struggling to meet their regulatory obligations while 58% of small firms find the regulator challenging to deal with in comparison with 42% of firms of all sizes.

“Their resources are limited, and would of course be stretched by any regulatory inquiry,” Matt Smith, chief executive officer at SteelEye, told The TRADE. “Even the process of responding to and managing an investigation would be felt more acutely than it might be in a business with a global function.”

Several major Wall Street firms have been hit with huge fines in recent months for non-compliant communications and use of communications channels. The US Securities and Exchange Commission (SEC) confirmed earlier this week that its enforcement penalties had surged to a record in the government’s fiscal year, with its total enforcement actions totalling $6.4 billion in fines, up from $3.9 billion last year.

Fines around the use of messaging services such as WhatsApp to conduct business have largely driven this rise. Bank of America was served with a $200 million fine from the Securities and Exchanges Commission (SEC) in July relating to its use of “unapproved personal devices”, joining JP Morgan and Morgan Stanley who both also received multi-million-dollar fines from the regulator in the same month.

“For firms still establishing their footprint, a fine for non-compliance could be especially damning – financially and reputationally,” added Smith. “Given the regulator has a clear focus on off-channel communications, firms must ensure their communications policies around permitted channels are watertight, and their monitoring processes are providing them with full coverage.”

SteelEye published research in July that found that the majority of firms were not yet monitoring WhatsApp despite the recent major fines. According to the firm, only 15% of firms were monitoring communication on the social media channel.

“Any firm that might be aware of compliance failings should consider open dialogue with the regulator about the remediation steps they are taking address any shortcomings,” Smith added. “The FCA in particular has always encouraged open communication with firms, and indeed the SEC has warned broker-dealers and asset managers that they would be “well-served to self-report and self-remediate any deficiencies”.”

The post Small firms are next in firing line for Wall Street communications fines, SteelEye warns appeared first on The TRADE.

The funding round, led by Ten Coves Capital and existing investors Fidelity International Strategic Ventures, Illuminate Financial and Beacon Equity Partners, increases SteelEye’s total capital raised to date to $43 million.

The fundraise follows significant growth from SteelEye last year, which saw its revenues grow by 88%, and it will be used help support the company as it looks to achieve scalable expansion.

Headquartered in London and with offices in the US, India and Portugal, SteelEye provides a software-as-a-service based RegTech platform which allows firms to simplify their compliance processes across various EU, UK and US market regulations.

“Facing regulatory clampdowns, huge data volumes, and inflation impacts on budgets, financial firms need ways to reduce costs through efficiencies and automation,” said Matt Smith, chief executive of SteelEye.

“This is what we deliver through our distinctive, data-centric compliance platform. We are delighted to partner with the team at Ten Coves Capital, who have a long history of enabling technology businesses to scale and deliver real value to the financial services industry.”

The post SteelEye secures $21 million in Series B funding round appeared first on The TRADE.

Just 15% of investment firms are monitoring communication on the social media channel while just 9% monitor Slack and 3% monitor Signal, a Compliance Health Check report by SteelEye has found.

Around 40% of firms monitor incumbent platforms such as Teams and Bloomberg Chat, while only a quarter monitor Zoom.

“When it comes to email and desk phones – or traditional methods of communication – record keeping and supervision rules are relatively straightforward. The emergence of new communications channels like WhatsApp, and the vast volume of data they produce, have complicated manners,” SteelEye chief executive Matt Smith, told The TRADE.

“Post-pandemic, the rise of home and hybrid working has forced regulators to prioritise the growing problem of off-channel communication. Complicating things further, digital communications monitoring also brings with it the challenge of carefully balancing compliance and employee privacy.”

Bank of America became the latest major institution to be served with a $200 million fine from the Securities and Exchanges Commission (SEC) in the last few days relating to its use of “unapproved personal devices”, joining JP Morgan and Morgan Stanley who both also received multi-million-dollar fines from the regulator in the last week.

In light of this, over two thirds of firms now rank surveillance as one of their two main investment priorities for the coming year, SteelEye found, with 41% focusing specifically on communications surveillance as a priority.

Communication channels have increasingly come under the spotlight in recent years due to increased dependence on them during the global pandemic, which saw the industry forced into remote working conditions for prolonged periods.

“Monitoring off-channel communication will undoubtedly be a priority for both regulators and compliance teams in the coming years. Electronic communications channels are constantly changing, and new platforms pose a big risk to firms, as new places where unmonitored conversations between regulated representatives can take place,” added Smith.

“The regulator is already putting pressure on firms to prioritise communications surveillance. In the short term, we anticipate more fines for failures to monitor off-channel communications, and the impact will be felt beyond tier one banks. Smaller firms and asset managers must also be aware of the risks of communications surveillance gaps, and the fines that can be issued as a consequence.”

The post Firms are failing to effectively monitor communications as fines roll in, research finds appeared first on The TRADE.

President Joe Biden

It has been a little over a year since President Joe Biden was inaugurated. While headlines during this time have focused on how his approach to climate change, foreign policy, and Covid differs from his predecessor, there is another area in which Biden’s administration has demonstrated a departure from prior strategy – namely financial regulation. 

The previous administration seemingly took a more conservative stance when it came to regulatory intervention based on a belief that fewer restrictions create a more business-friendly landscape. 

• In 2018, President Trump signed a bill designed to ease the rules on all but the largest banks – one of the biggest rollbacks of banking regulations since the financial crisis. This included raising the threshold under which banks are deemed too important to fail and easing mortgage loan data reporting requirements. The measures aimed to boost economic growth and ease the burden placed on small to medium-sized lenders by the Dodd-Frank financial reform act.
  

• Another controversial move by the administration at the time was the proposed amendments to the Exchange Act filed by the Nasdaq Stock Market together with the Securities and Exchange Commission (SEC). The proposal was to change the rules around direct listings to allow companies to offer shares to the public without going through an underwriter.  

While supporters of these changes believe that fewer regulations will breed growth, opponents claim that it comes with increased risks. 

Once President Biden was sworn in, there was much speculation that the new president would push an ambitious agenda across a range of different areas, looking to immediately rescind many of the executive orders issued by the Trump administration.  However, so far, the president has made few, if any, changes in relation to the Dodd-Frank rollback.  

There have, however, been several other influential developments under the Biden administration, notably the appointment of Gary Gensler as Chair of the SEC in April 2021.  

Under Gensler, a former investment banker at Goldman Sachs who was chairman of the Commodity Futures Trading Commission (CFTC) under Barack Obama, the SEC filed 7% more enforcement actions in 2021. Whilst this change does not imply a drastic shift in priorities, it could be a sign of policies beginning to revert to a time before Trump’s regulatory rollback. 

The appointment had Wall Street firms bracing for stricter oversight as Gensler pledged to protect investors, facilitate capital formation, and promote fair, orderly, and efficient markets – promising that the SEC would “pursue misconduct wherever it is found including on issues such as record-keeping that don’t make headlines.” And this is certainly something we have seen already. 

In December, the SEC brought one of its largest enforcement actions to date for record keeping breaches – fining JP Morgan $200m for “widespread and longstanding” failures to maintain and preserve written communications. The SEC found that the bank’s employees regularly communicated about securities business matters on their personal devices, using text messages, WhatsApp, and personal email accounts.  

And now, it seems Gensler has his sights set on special purpose acquisition companies (SPACs) due to concerns over their ‘meteoric’ rise. In fact, the SEC, alongside the Financial Industry Regulatory Authority (FINRA), is currently investigating the SPAC that plans to take former President Trump’s nascent social media company public.  

Gensler has also hinted that there will be new rules and regulations to come. He has called for more regulation around cryptocurrency exchanges, including those that solely trade bitcoin and are not currently required to register with the SEC. 

As well as clamping down on financial institutions failing to meet their compliance obligations, President Biden’s administration has also strengthened the protection for whistle-blowers by signing an amended version of the bipartisan CFTC Fund Management Act.  

The Act, which came into law in July 2021, protects a whistle-blower program that was introduced to reward individuals who help root out waste, fraud, and abuse. And the impact is already being felt. The SEC paid out a record $564 million to whistle-blowers in 2021 – more than it has paid out in the last 10 years combined. It has also taken enforcement action against employers for impeding whistle-blowers from reporting misconduct to the Commission. 

The Biden administration is leaving its mark in financial regulations, but will it be able to continue to do so, and establish a legacy of regulatory reform? For the answer, it may be worth looking at Biden’s environmental track record. While he may have quickly reversed many of former President Trump’s executive orders on the environment, his recent failure to pass the Build Back Better budget suggests that Congress is a ‘major obstacle’ to his more significant and controversial ambitions, which, if the Republican Party takes either the House or Senate following the mid-term elections, will become more challenging. 

However, for now, President Biden is expected to continue to push his stricter regulatory agenda, with the support of the SEC and its pro-regulation chair Gensler.  As evidenced by the JP Morgan fine, and the record whistle-blower pay-outs, this administration is serious about “pursuing misconduct wherever it is found” and no financial institution is too big or small to get caught. Therefore, in this increasingly complex and comprehensive financial regulatory landscape, where the consequences for non-compliance are higher than ever, financial institutions must, as ever, take regulatory compliance seriously. 

The post A year since Biden’s inauguration: Has SEC enforcement increased post-Trump? appeared first on The TRADE.

Brian Lynch will take on the role, working closely with Matt Smith, chief executive of SteelEye, and the management team to help establish the firm’s US footprint.

Leveraging his industry experience and regional knowledge, Lynch will also lead SteelEye’s commercial expansion in the North American market.

Lynch joins from Bloomberg where he most recently acted as global head of its Regulatory Reporting Services, formerly RegTek Solutions, which was acquired by Bloomberg in August 2019.

Prior to the acquisition, Lynch acted as co-founder and chief executive of RegTek Solutions.

“Brian’s experience in the industry is second to none, making him a perfect choice to lead SteelEye’s US business. Our North American clients will benefit hugely from his extensive regulatory background,” said Smith.

“Brian’s knowledge and understanding of the regulatory challenges financial firms in North America face will be invaluable. I look forward to working closely with Brian as we continue to build out SteelEye’s North American franchise.”

Lynch’s appointment follows that of Philip Lemmon, who was appointed as commercial director earlier this year, following the reveal of SteelEye’s plans to expand into the US.

To help support its expansion plans, SteelEye successfully raised $17 million in two separate funding rounds last year, led by Fidelity International Strategic Ventures and Illuminate Financial, and US-based investor Beacon Equity Partners respectively.

“I am thrilled to join SteelEye at such an exciting stage for the business. The data platform that SteelEye has created is precisely what the market needs – it is flexible, dynamic, and powerful. The ease with which clients can navigate and aggregate data from multiple and disparate sources offers so much to users,” said Lynch.

“This is especially true for firms who have struggled to extract information from the vast quantity of data that they generate on a daily basis. Everyone is looking for greater insights and SteelEye has built a platform that delivers exactly that.”

The post Bloomberg’s regulatory reporting head moves to SteelEye as president of US operations appeared first on The TRADE.

Philip Lemmon joins SteelEye in senior sales position after previously being a part of the business development team at transaction cost analysis (TCA) provider LiquidMetrix.

Prior to LiquidMetrix, Lemmon worked at Abel Noser in EMEA sales and client services for its TCA and providing consulting on reducing execution costs for clients. He started his career at electronic agency broker E*TRADE where he oversaw the support desk for institutional clients.

“During a time of rapid transformation across the sector, I’m confident our clients will benefit from Philip’s detailed knowledge of front-office technology and trade surveillance tools, and I look forward to working closely with him during our next phase of growth,” Matt Smith, CEO of SteelEye, said.

The senior appointment follows two funding rounds in 2020 totalling $17 million for SteelEye in April, led by Fidelity International Strategic Ventures and Illuminate Financial, and US-based investor Beacon Equity Partners.

The firm said it would use the funds to expand into the US amid high demand for cloud-based compliance and regulatory oversight technology, new working conditions brought on by the pandemic, and challenges posed by regulation brought in across the region.

“SteelEye’s solutions are truly unique and can add immense value to financial firms as the regulatory landscape continues to change and evolve,” Lemmon commented on his appointment.

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