Recording telephone conversations?

Stephen Thurston, Director

FSA announce that it will be mandatory to record telephone conversations and other electronic communications from March 2009

Who will be affected What core technology is available to support

this regulation to ensure effective compliance

Recording of Mobile PhonesAnalytics - Market Detect

Regulatory Changes

FSA beefing up current guidance to rules for recording Regulators looking more closely at incidents of;

- Market manipulation- Suspicious incidents - Cases of insider dealing

New proposals require voice recording of;- Client orders- Agreeing, negotiating, arranging transactions in equities, fixed incomes &

derivatives

Regulatory Changes

New regulations require firms to; - Record & maintain voice recordings for 3 months - Make them easily accessible - May also impact text, fax and email

PCI regulations are starting to influence recording “rules” e.g. secure recording architecture, encryption

As FSA becomes more aware of technology solutions available higher expectations will be placed on firms

Financial Service Products affected

Exchange Traded Equities Off Exchange Traded Equities OTC Exchange Traded Options Futures Commodities Hedge Funds Spread Betting Instruments

Individuals affected

Compliance System Security Agency Brokers Sales people Sales Traders Principal Dealers Corporate Finance Research Managers Client Facing

Considerations of Call Recording

Unlikely that regulators will be in abeyance for too long on this issue

- Firms should forward plan for call recording projects- Budgeting early may reduce overall costs

Recording acts as a deterrent to criminal activities Recording supports HR – bullying or employee breakdowns

leading to disputes can be ring-fenced before court involvement Time and legal fees can be saved in disputes

- Disputes with agents or clients can be quickly diffused if recording can prove the exact position

RRecording Mobile Communications

Goal

to enable recording of calls and text into and

out of mobile phones without the need for user

intervention.

Issues so far

User has to initiate recording

Organisation has had to take special mobile sims or change mobile provider

Special equipment is needed to allow each user to be individually recorded – where there might be many hundreds of users this is extremely expensive

…outgoing calls

Record incoming calls…

An identifier is added to the incoming call from the gateway or PBX. » If the identifier is not present call is rejected and routed to the gateway or PBX .

» Call is received at Gateway and recording starts.

» Caller’s CLI is passed through for identification.

…incoming calls

Telco

2 If call notrecognised rejected to gateway.

Routing gateway

4 Recording

3

1 Third party dialsMobile Number

Option 1 – Network based recording

Call recordings downloaded over VPN to company’s private network

Recordings in OPEX Network

Secure Internet access to call recordings

21

Department LAN

Router

OR

Option 2 – Recording on your own systems

Calls re-routed by PBX to destination number

All calls to or from mobiles automatically routed to corporate PBX

Recordings stored on local corporate call recorder

Record incoming text

» User receives SMS as normal.

» Phone detects and sends copy to OPEX Hosting.

» Copy has original source number added to body of message by phone software for identification purposes.

» User/administrator accesses messages through the same interface as voice messages.

…incoming text

OPEX Hosting

Record outgoing text

» User composes and sends SMS as normal.

» Phone detects and sends copy to OPEX Hosting.

» Copy has original destination number added to body of message by phone software for identification purposes.

» User/administrator accesses messages through the same interface as voice messages.

…outgoing text

OPEX Hosting

Summary» No specialized equipment to host.

» Any mobile network - no need to change supplier.

» Keep own mobile number.

» Web based access for recordings, or delivered to your own secure database.

» Fully automatic - User cannot forget to record.

Analytics

Market Detect

What is Detect? Detection techniques Summary

What is Detect?

Designed to detect anomalies in large volumes of transaction data in real time.

Basic transactions can be enriched using data from multiple sources such as blacklists or geographical data.

Enriched data is stored and can be mined. Alerts can be triggered from rules engine or risk

engine. Comprehensive alert routing system. Case management

How Detect Creates Alerts

Events are split into streams called channels- e.g. accounts, merchants, caller IDs, stock IDs.

Large numbers of computations are made on each channel’s history as it unfolds. User defined System generated

These measurements trigger alerts via: User rules Risk models

Architecture

Layered design Very fast and scaleable Platform Independence Configurable Easy installation

Alerts

Flexible alerting Operator free On-screen Email SMS Audit trail of alerts and user processing

Techniques Deterministic

patterns (business rules) Statistical

Supervised Machine learning

Unsupervised Peer groups Link analysis (networks) Sequence matching

Market Detect

Information Enrichment Back Office transactions can be linked to:

Geographical information Commodity/security classification Transaction type classification Client database

PBX/Turret caller IDs can be linked to: Country SDN code locations Employee records Client database

All calls and trades can be linked to: Time of day and week categories Holidays calendar

Patterns (rules)

Rules are generally for monitoring events over rolling time windows, which can be seconds to weeks long.

Eg: Alert account if total traded in previous 2 hours exceeds £10K

Alert stock if ratio of buys to sells exceeds R in last 24 hours.

Rules should be very quick to implement or edit using the GUI and can be tested prior to being activated.

Peer Group Analysis

Tracks derived measures for a historically similar cluster of brokers (stocks or accounts) and alerts when a member of the cluster appears to ‘break rank’.

“Breakpoint analysis” can also be carried out for individuals if transactions are normally frequent and regular.

Peer Group Examples Disproportionate fees. Seller IDs whose sell quantity rise up suddenly. Seller IDs whose sell quantity fall suddenly. Buyer IDs whose buy quantity rise up suddenly. Seller/buyer IDs who suddenly starts a large volume of

trade. Stock IDs where trade volume or trade quantity

increases suspiciously. Stock IDs with sudden raise or fall in price or having

same (or linked) buyer and seller.

Sequence Matching

Order from I to buy S

A B & CBuy S

Buy for Iexecuted

Stock S rises

Sequences could be used to constrain link analysis which would otherwise be intractable.

• Suitable for sequence matching? Front-running Shadowing

Link Analysis Discover sets of individuals, accounts or transactions

related by hidden intermediaries. Eg: All brokers who have traded a certain stock in a

given period. All accounts which have benefited by a certain stock

rise Shadowing- discover sets of proxy accounts tracking

known investor. Investor pools playing ‘pass the parcel’ to

manipulate prices.

Summary

Financial Crime high on the Corporate Agenda – Estimated at £2 Trillion in Financial Fraud Worldwide.

Challenge is for Compliance to provide the surveillance for irregular trading behaviour.

Leading Edge analysis tools for Trading Data. Real Time detection of unusual trading behaviour

which may indicate fraud. Analyse relational behaviour. Alerting and case management for potential frauds. Limit Financial exposure and deter Fraud.

Thank you!