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Corporate Compliance Insights
Home Featured

Financial Forecast: Cloudy with a Good Chance of Behavioral Insight

by Chris Wooten
July 30, 2018
in Featured, Financial Services
cloud icon on green background

A Cloud-First Approach to Managing Financial Communications Data

The current regulatory framework, which has grown more complex since the 2008 financial crisis, requires more information to be recorded. Regulators have come to realize that in most cases of misconduct, voices may be the only evidence of bad behavior they can use to prove a case. NICE’s Chris Wooten discusses the benefits financial institutions can reap by using a cloud-based solution to retain communications data.

Modern regulations require banks and financial institutions to capture more communications data than ever. Following the financial crisis of 2008, Dodd-Frank established the obligation for U.S. banks to inject transparency into swap trading and derivative processes with voice recording. Europe was soon to follow with MAR and MiFID II, vastly expanding the recording requirements to all asset classes and additional subject matter.

The concept behind this trend is plain and simple: people talk. They talk about what they are going to do before they do it, and they brag about what they have done after the fact. Traders are no exception. Understanding this dynamic, financial institutions the world over attempt to manually review and understand how and what their traders are saying and doing. This traditionally requires a massive amount of human resources, is grossly inefficient and often yields inconsistent, hit-or-miss results.

Innovations in behavioral insight are changing the very essence of compliance programs in real time. Technology is automating compliance monitoring and analyses, giving firms the ability to unlock behavioral insights from millions of regulated communications (voice, chat, email and texts) their traders engage in every day. These insights have proven powerful in detecting, predicting and preventing future risky behaviors, helping firms break the cycle of conduct risk.  Using the latest technology, historical data has found a new purpose.

This movement creates a unique challenge: where do you store all this data and for how long? Traditionally, financial firms kept data for only as long as required by law. Data deletion was imperative, since storing and analyzing large amounts of data using physical, on-premise servers is cost prohibitive and inefficient. Another critically important factor is obsolescence of hardware, software and media format. Proactive measures must be taken to access and read records, such as migrating to newer versions or retaining old physical hardware or software.

Cloud technology is addressing many of these historical issues. Cloud storage can significantly reduce the cost of data retention, eliminate the need to keep outdated hardware and put a bank in the position to easily migrate to a private and/or public cloud as they feel more comfortable. In an age where fines in the tens or even hundreds of millions of dollars are not uncommon and when cloud technology is keeping storage costs down, firms are beginning to realize that the value of their big data far outweighs the incremental costs to retain it.

Until recently, when internal stakeholders debated if the liability of expired data and the cost of storage outweighed the value of historical data, the consensus was always no. But that mode of thinking is rapidly evolving today. Where retention of expired data was once considered a hazard, now it’s considered an asset, thanks to predictive big data analytics. For years, portfolio managers have utilized historical information and trends to sustain successful investment management decisions.  Compliance programs can now take advantage of the same strategic approach. Advanced technologies (like machine learning, advanced analytics and sophisticated algorithms) can unlock hidden insights in data to help firms avert multimillion-dollar fines, sometimes without even lifting a proverbial “finger.” It’s easy to see why keeping data longer should be the new normal.

Furthermore, firms should consider keeping data longer because regulators are increasingly expecting them to, in order to take advantage of modern technological innovations. Behavioral Anomaly Detection is a prime example of such an innovation. Banks can develop profiles of individuals or groups using statistical and machine learning models on historical data. With enough historical data, sophisticated technology can identify unknown risks or anomalies, whereas today most compliance programs can only look for known risks, such insider trading.

Profiles can identify deviations from normal trading or communication patterns and proactively alert first- or second-line compliance professionals – in many cases allowing for instantaneous review. By focusing on deviations in behavior, compliance departments can define and implement a proactive, disciplined approach and an ability to remain scalable as markets or departments grow.

Access to historical data is rapidly becoming critical for tier one financial firms as regulators worldwide increasingly expect proactivity and advanced analytics. Most firms don’t have the elasticity to bring all of the data together in that manner. Manual compliance procedures are virtually impossible, since banks have significantly increased the number of employees they are recording, as well as the modalities they are allowing employees to communicate on. As a result, investment in compliance assurance solutions is anticipated to increase in 2019, with an emphasis on the ability to prove all the trade conversations that required to be recorded are, in fact, recorded and analyzed in real time.

Firms will increasingly utilize the cloud to drop the total cost of data retention, making cutting-edge compliance solutions more effective than ever before. Behavioral insight will evolve compliance departments to proactive supervision, saving hundreds of millions in conduct fines and promoting global market integrity.


Tags: banksBig DataCloud Complianceconduct riskdata analyticsDodd-Frankmachine learningMiFID IIretention
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Chris Wooten

Chris Wooten serves as Executive Vice President of the Surveillance Group since 2014. He is responsible for leading NICE’s global Surveillance team in developing and delivering innovative solutions to address the security, safety and operational challenges of organizations operating in today’s complex, dynamic world. ​

​​Mr. Wooten was one of the early pioneers in security at NICE, leading several strategic acquisitions that laid the foundation for the Security Group at the company. He was also instrumental in the establishment of NICE’s Global Public Safety b​​​​usiness and the Security Group in the Americas. During his tenure with NICE, Mr. Wooten has held various executive positions including Vice President and General Manager of the Public Safety Division, President of the Public Safety Global Business Unit and President of the Americas Security Division.

​​Mr. Wooten has also held executive positions with Motorola, JTECH Communications and Thales Contact Solutions, where he led the organization to consecutive year double-digit revenue growth. Thales Contact Solutions was subsequently acquired by NICE in 2002.

Mr. Wooten holds a BSBA Degree in Marketing and Business Administration from the University of Central Florida.

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