Audio data from trading rooms become key in controlling the risk of non-compliance. Speech technology, boosted by deep learning and deployed by BFI’s compliance, opens the way to a global capitalization of the company’s data.

In a constantly changing regulatory environment, audio data from telephone conversations in the trading room become essential for bank compliance. Voice technology is revolutionized by the new deep learning approaches associated with artificial intelligence. We analyze the meeting point of these two trends, through an innovative deployment in the London trading room of a large investment bank (CIB). Is this a sign that the technology challenges for compliance is at an end? Or simply the beginning of a large number of new applications for financial institutions, against a backdrop of continued digital transformation?

Part I. The advent of audio data in the compliance processes

The compliance departments of corporate investment banks (CIBs), asset managers, brokers, and generally investment services providers (ISPs) now have a strong interest in the audio data from telephone calls in the trading room. Let’s analyze the regulatory reasons that make audio data inevitable for compliance to target.

“MiFID II reinforces and systematizes the call retention requirements and extends them over the phone. MiFID II also introduces an obligation to monitor and verify compliance of communications.”

The new MiFID II Obligations

The first vector of the recent attention of the compliance departments for the audio data is the entry into force on 3 January 2018 of the regulation on the markets of financial instruments, MiFID II / MIFIR, known as “MIF 2”. Compared to MiFID I, MIF 2 reinforces and systematizes the call retention requirements and extends them over the telephone (see Box 1); this preservation is always associated with the ability to retrieve all the data related to a transaction. MiFID II also introduces an obligation to monitor and verify compliance of communications and the potential use of data for the control of compliance with other regulations, in particular concerning market abuse and the protection of customers.

A context of regulatory inflation

(Figure 1)Legal costs of major banks based on underlying offenses
2008 – May 2016, in billions of dollars.

speech technologies

“According to a report by the ECB, breaches of the code of conduct, market manipulation or money laundering and tax evasion, accounts for $ 135 billion in legal costs over 8 years, almost as much as subprime costs”

MiFID II comes in a dense regulatory context: from Basel II and MiFID I in 2007, followed by Dodd-Frank and FATCA in 2010, EMIR in 2012, or Basel III in 2013, many regulations have accumulated for service providers. investment service. Among the most recent, in addition to MIF 2 and the GDPR, there is the new MAD2 / MAR market abuse regulation that came into effect in the summer of 2017, and is accompanied by a reinforcement of the “code of conduct”.

This increase in regulatory rules has been accompanied by a joint increase in the spectrum of controls, their number, and the amount of sanctions. According to a report by the ECB , the cumulative amount of legal costs from 2008 to 2016 is in the order of $ 270 billion – mostly in remediation plans. Within this amount, breaches of the code of conduct, market manipulation, or money laundering and tax evasion, weigh 135 billion dollars, almost as much as the costs related to subprime (Figure 1). Violations of the code of conduct, market manipulation or even money laundering and tax evasion, weigh almost as much as the costs related to subprime. Source: excerpt from a table in the ECB report, Financial Stability Review, May 2016 – Special Features

The same report raises legal costs for European banks between $ 15 billion and $ 25 billion a year, between 2013 and 2015. And while overall fines have dropped significantly since 2015, thanks in part to significant investments in compliance, some experts ask:

“Should we wait for a new cycle of fines with the entry into force of the MiFID II directive from 3 January 2018?”

The risk of non-compliance is taken seriously by banks and ISPs. Beyond the risk of fines or remediation, the risk of image and damage to the “Brand” is factored into account in the equation. The monitoring of telephone calls mentioned in MIF 2 is seen by many as an additional means of reducing the overall risk of non-compliance with regulations such as MAR, the Code of Conduct, anti-money laundering, anti-tax evasion and others.

1 ECB, (2016), “Financial stability review, May 2016”

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About the Author

Arianne Nabeth Halber

Ariane Nabeth-Halber, Director, Strategic Line “Speech”, Bertin IT; Member of the Board of LT-Innovate, Language Technology Industry Association;
Expert and Reviewer at the European Commission; Doctor in Computer Science and Signal Processing.