Banks chase trading cheats with 'fuzzy' surveillance

Tue Nov 18, 2014 4:00pm EST
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By Vidya Ranganathan

SINGAPORE Nov 19 (Reuters) - Stung by billion-dollar fines for malpractice on their trading floors, the world's big banks are using 'fuzzy logic' tools such as relationship mapping and behavioural analytics to read the minds of would-be cheats among their traders.

On Wednesday six global banks agreed to pay $4.3 billion to settle claims they failed to stop traders from trying to rig foreign exchange markets, which came hot on the heels of similar fines for manipulating benchmark interest rates.

Older systems to catch misconduct, still in use at some firms, pick through conversations for trigger words, but they can be easily circumvented.

"Traders have moved on. They know their communications are being monitored; they are using different channels and new words," said Richard Moore, head of financial crime and security services at DBS Bank in Singapore.

The latest technology hopes to overcome that via behavioural analytics, using fuzzy logic, which instead of hunting for a smoking gun, builds up an understanding of the relationships and probabilities that might predict transgressions.

Moore said DBS employs analytics experts in its compliance team and is working on a module to extend their behavioural profiling of ATM transactions and cardholders to chats and emails.

"What we need is the ability to profile behaviour, to know what is normal behaviour and realise when it begins to change," he said.

A host of surveillance firms have stepped forward with analytics that promise to do that.   Continued...