How AI is revolutionizing market abuse detection?

“After years of dilution in the many concerns of the general management of financial institutions, compliance is once again becoming a major issue” notes Alexis Monier, CEO of the market abuse detection solution publisher AfterData.

Limiting operational risk and better taking into account the requirements of the regulator in an unpredictable financial context is clearly one of the main challenges for 2022.

Quicksand for compliance departments

The extreme volatility of the markets observed over the past 18 months, the return of inflation and the geopolitical context have literally drowned many compliance departments: multiplication by 5 of the number of market abuse risk alerts, delays in processing several months, recourse to external resources trained “quickly”, or even failure to process some of the alerts. A direct consequence: +312% of job offers in compliance since the beginning of the year.

The difficulties encountered are easily explained. The staff of the Market Integrity teams is often limited, the tools have changed little and above all have not benefited from the revolution in data processing which has enabled the investment teams to increase their efficiency tenfold.

Finally, the regulator’s requirements are increasing. This contributes to securing the markets, which can only be positive for all of us. This also has a heavy impact on financial players who have to question well-established organizations.

In this context, analysts and compliance managers need more than ever to discuss and share their best practices. Here we salute the organization of the 1st Circle of Compliance which offers a moment of discussion reserved for compliance professionals on July 7 at the Village by CA in Paris (more information HERE).

Technology to help compliance

Good news: the compliance teams, and in particular those dedicated to detecting market abuse, are once again in the spotlight. And naturally there is the question of organization and tools.

Traditional market abuse detection solutions generally stand out for their ability to generate 50 false alerts for one partially justified alert. This exhausts the teams and does not allow any agility. In addition, the analyst is often unable to understand the alert, due to the lack of an explanation provided by the solution.

However, modern financial data processing technologies allow a real selection of relevant alerts in order to highlight ONLY risky behavior. The results are obvious: division by 2 or 3 of the number of false alerts AND better detection of cases of risky transactions.

“The triptych of micro-segmentation, machine learning and self-learning scenarios” makes it possible to limit false alerts to less than 5%. explains Aurélien Monier, compliance expert at AfterData.

Market abuse detection software publishers are not the only ones to have understood the value of these technologies. The regulator itself indicates that “Big Data and artificial intelligence have been part of the daily life of the AMF for a few years now”.

The icing on compliance, in addition to reducing risks, these new generation solutions often result in lower costs for compliance departments.

2022, a pivotal year

While the years 2020 and 2021 have put compliance back at the center of the concerns of financial institutions, 2022 seems to be placed under the sign of reorganization and restructuring: new objectives, higher requirements, new means and often new tools.

To discuss all these questions between compliance managers, we invite you to participate in the Compliance Circle July 7 from 8:30 a.m. to 10:30 a.m. at the Village by CA in Paris.