Hedge fund managers beware, someone is watching you. Or rather, something is watching you. A new artificial intelligence system can monitor traders, learn their behaviour patterns and raise the alarm when they do something out of character.
For example, a trader who has avoided securities for a long time after suffering a loss on them suddenly dives back into a losing position. This triggers an alarm in the monitoring system and sends an alert to the hedge fund’s compliance team.
Welcome to the world of regulation technology or “RegTech”. The term itself has taken off since former UK chancellor George Osborne raised it in last year’s budget, promising to support “new technologies to facilitate the delivery of regulatory requirements” to the financial services sector.
A second area of focus is risk-data aggregation, which involves gathering and analysing information on capital and liquidity for use in internal models and in reports to regulators. An example of a start-up focused on this area is Suade, which was founded two years ago by former Barclays trader Diana Paredes and ex-Nomura banker Murat Abur. It provides a platform that keeps banks in line and up-to-date with the latest prudential requirements.
“RegTech indeed has become its own sector since we first started addressing it in 2014,” says Ms Paredes. “But ultimately it is about making the financial system more efficient, transparent and stable which is what everyone, from regulators to ordinary people, and even the bankers want.”
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