Compliance in the Age of Unlimited Data

During the recent CLS Conference in Toronto on Financial Industry compliance it struck me that a considerable amount of discussion was focused on the industry’s recognition of the scope and complexity that Compliance teams face in today’s world. We live in a world with vast quantities of data but we struggle to organize it in meaningful ways. There was discussion around the changes to regulations and strategies that various stakeholders are proposing to meet new and expanding reporting requirements and all of them require data. The message that came across clearly is that everyone from the regulator to the investor are part of the compliance lifecycle and can contribute to its management and enforcement, from my perspective I wondered about how well most of these organizations have harnessed their data to support compliance. There was even a discussion on how to turn compliance into a profit centre based on the savings for being simply compliant. Organizations can realize a cost savings by reduced legal proceedings and any potential fines.  From my perspective as a data professional I believe that the foundation of compliance, enforcement and identification is based in data and most of the dialogue mentioned source information but there was little discussion on the difficulty in collecting the data so that it is meaningful. From the compliance officer’s perspective, they need the data and IT just needs to provide it on a timely basis. As reflected by the speakers at the event this is often the most demanding and underestimated part of compliance. From an IT perspective we need to better serve the users by providing data in more standardized and consumable format for both the organization and the regulators.

There is a significant demand today for information, and compliance is one area in the financial industry where a truly comprehensive view of the data is needed more than most. The compliance group in all financial institutions need to generally report on all of the information across the entire institution. This requires that data is collected from numerous systems and organized in a way that is useful and meets the compliance requirements. Most financial companies have so many systems and so much data this task is daunting and challenging. Each financial institution have such a volume of data needed to support compliance they are looking at how to better store information such that it serves compliance needs but also provides additional value for analytics and prediction.  This is not simply a storage problem but also a problem of integration. This is where Big Data is lending a helping hand. We see many banks creating data repositories to service compliance requirements but with vision for a more robust platform for analytics in the future. Data is being stored and integrated to support the foundation of information for this need today of compliance and the future for improved analytics. These data repositories become valuable resources as for many this is the first time that data from across the various financial portfolios have been integrated and made available for use by analysts along with compliance teams.

The other challenge we observed was how these same organizations need to become more proactive to address problems before they become compliance issues. Most reporting today including compliance, present data at a point in time, this approach is great for reactionary actions but do little to prevent future incidents. Our data solutions need to provide more actionable insights and identify problematic trends in advance. One such example is finding trends in questionable trading.  Today most brokerages have systems which identify whether a single trade is potentially a violation of trading rules or a trade model such as layering or spoofing. Most receive many of these alerts per day and finding trends is difficult if not impossible. Based on a single trade alert, a compliance officer may identify it as a violation and take some action, but often with so much data, the noise of false alerts make it difficult to identify the true violation. However when grouped together we can see trends that at the individual level were not detectable but over a longer time frame are repeated and begin to form an identifiable and actionable trend. This approach to analytics can enable better and more proactive compliance. In this case it provided new analytics which complemented the compliance requirements.

The conference illustrated the complexity which all compliance teams face but also shared how organizations can better manage and implement it. At the core, financial institutions are finding better ways to address compliance and data is the foundation.