NEW YORK • You're young and want to get ahead. First in and last out of your Wall Street office. You work weekends and message colleagues with inspired trading ideas at all hours. Guess what? You've just marked yourself as a potential rogue trader.
Welcome to the brave new world of trader surveillance, where former Goldman Sachs Group research analyst Erkin Adylov is building a library of banking villainy based on the behaviours of hundreds of past miscreants such as UBS Group's Tom Hayes and Societe Generale's Jerome Kerviel.
Using thousands of inputs, from stress levels in voice recordings to the frequency of visits to the staff canteen, Mr Adylov and his team at start-up Behavox grade employees on how likely they are to go bad before they do anything wrong.
Hedge fund Marshall Wace and interdealer broker TP ICAP are already using the software to monitor employees, and some of the biggest investment banks and commodities dealers in the world have begun testing it.
After paying fines of more than US$200 billion (S$284.4 billion) in the past eight years for a catalogue of failings, from money laundering to market manipulation and terrorist financing, banks are looking to companies like Behavox to keep them out of regulators' crosshairs.
"If you don't know what your employees are doing, then you're vulnerable," said Mr Adylov, a 33-year-old rail-thin native of Kyrgyzstan. "Some banks don't seem to want to know how exposed they are, and they are the ones who are going to get fined next."
Under scrutiny like never before, finance firms are spending as much as one-fifth of their revenue on compliance, hiring tens of thousands of investigators, out-of-work traders and former intelligence officers to sift through employee communications. It's not just the threat of fines that's motivating them: Under new rules that came into effect last March, senior managers in the UK can be held accountable for the actions of their underlings and even face jail sentences.
Behavox uses machine learning, also known as artificial intelligence, to scrutinise every aspect of an employee's working life. It scans petabytes of data, flagging anything that deviates from the norm like shouting on a phone call, accessing a work computer in the middle of the night, or visiting the restroom more than colleagues.
The system checks these behaviours against case studies of past traders who have strayed from the straight and looks for a match.
"With this system, users benefit from eyes and ears across the industry and the behaviours that are being spotted and fed into it," said Mr Conor Kiernan, chief technology officer at Marshall Wace. "It really doesn't pay to be insular when it comes to compliance."
BLOOMBERG
