Banks turn to data detectives to root out rogues

Financial institutions are overhauling how they collect and analyse data in an effort to combat and prevent rogue traders.
Changing budgets and responsibilities within the banks reflect the increasing importance placed on data analysis and compliance.
Changing budgets and responsibilities within the banks reflect the increasing importance placed on data analysis and compliance.

Banks are increasingly rooting out rogue traders such as JP Morgan’s ‘London whale’ and avoiding foul-ups such as Standard Chartered’s breach of US sanctions against Iran by overhauling how they collect and analyse data.

Banks are focusing on key areas such as anti-graft and money laundering procedures, investigating and recording the identities of trading counterparties and clients, as well as keeping a closer eye on the market prices quoted by their traders.

Detectives and data systems suppliers have enjoyed a mini boom in business as banks scramble to comply with new regulations, such as the crackdown on offshore tax avoidance by Americans called the Foreign Account Tax Compliance Act (FATCA), and tougher global capital adequacy rules known as Basel III.  

“All the Basels, long may they continue. Basel 42 would be nice,” says Neill Vanlint, managing director for Asia and Europe, Middle East and Africa at GoldenSource Corp, a data management consultant for financial institutions. 

One upcoming regulatory change in Asia that has bankers asking for help is Hong Kong’s crackdown on fraudulent companies listing on its stock exchange.  

The Securities and Futures Commission’s new rules come into effect on October 1 and make IPO bankers criminally liable for any false company statements in the listing documents. Bankers face up to three years in jail and a fine of up to HK$700,000 if they knowingly or recklessly sign off on an untrue statement. 

“A lot of people are biting their nails over this one,” said Stuart Witchell, co-leader in Asia of FTI Consulting’s risk and investigations practice. 

Changing budgets and responsibilities within the banks reflect the increasing importance placed on data analysis and compliance. 

Data management was seen as the responsibility of the Chief Technology Officer, but increasingly the budget is migrating into the hands of compliance officers. 

“Technology still needs to be involved but data management is becoming more of a business decision,” says Stuart Plane, managing director at London-based data systems supplier Markit EDM, adding that this happened a few years ago in the US and Europe and is only now becoming an accepted practice across Asia.  

To be sure, the challenges in ensuring compliance and effective data management are manifold. Banks are fighting to keep their costs low after seeing their returns plummet in recent years and most are cautious about splashing out on big technology upgrades and hiring consultants if a cheaper option is available. 

“Deal makers still don’t want to have to pay for an in-depth due diligence and often plumb for the cheapest option which just ticks the boxes … that’s the biggest hurdle we have to help clients avoid these pitfalls,” says FTI’s Witchell, who is also a former British diplomat.

FinanceAsia’s August edition contains the full article on this subject.

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