10 years ago
Proactively fighting fraud with data

A recent SAP survey found that 41 percent of financial services organization felt that predictive analytics are more about minimizing risk than exploiting opportunities. The way that statistic is phrased, it sounds like the financial industry views predictive analytics as a passive tool rather than an active one. But when you consider the risks that the financial industry faces–market risk, credit risk, compliance risk, risk of fraud–minimizing risk in financial services is hardly a passive job.

A case in point can be found by taking a closer look at a big data program currently being developed by one of the financial regulators. Yes, by one of the regulators.

The Financial Industry Regulatory Authority is developing “big data” analytics for improving oversight of securities firms, according to Carlo di Florio, Finra’s chief risk officer and head of strategy.  While that may initially sound like an active (and even aggressive) way for a regulator to use big data against financial firms, things are not exactly as they seem.

Rather than use the analytics as a gotcha tool for catching fraud in a firm, Finra is trying to develop tools that will be more proactive about spotting risk. In other words, instead of waiting for fraud to happen and then catching it, the tools are intended to look for vulnerabilities in certain customer mixes or spot weaknesses in investment vehicles that have the potential to be exploited.

When di Florio joined Finra from his previous role as director of the Securities and Exchange Commission’s office of compliance inspections and examinations, he was tasked with ensuring that Finra has processes for “assessing the most significant risks to the investing public and the integrity of our markets,” according to a statement at the time.

Di Florio’s new boss, Finra Chairman Richard Ketchum, has been a champion of big data, and the agency plans to use the technology to better inform the regulatory process.

The technology has the potential to bring about a “unique moment in regulation” that can help regulators “see things they couldn’t have seen or understood as well before.” di Florio said at a Securities Industry and Financial Markets Association compliance and legal society meeting.

By: Renee Caruthers
Originally published at www.fiercefinanceit.com