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Big Brother is watching traders at home for compliance slips

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The pandemic has created an unexpected boom in one corner of finance: surveillance.

As traders continue to work from home, banks are beefing up their efforts to monitor staff and root out any misconduct, according to NICE Actimize, which makes compliance, risk and financial-crime software. There’s been a surge of interest in advanced technology, such as machine learning, that can help employers catch unusual employee behavior, said Chris Wooten, an executive vice president at the company.

“With employees shifting to remote work, there was an increase in both the types of communications to be monitored and the types of behavior that could raise concerns,” he said in an email. “We saw communications channels expand from what was traditionally just office phones and trading turrets, to include personal mobile phones and unified communications platforms such as Microsoft Teams.”

Of 140 financial institutions surveyed by NICE Actimize, 76% of respondents said they expect monitoring and surveillance will increase over the next three years. Almost 20% said those measures would apply to all employees. “Clearly this reflects the investments that financial institutions are making now, or will be making in the future,” Wooten said.

The pandemic has created new compliance risks for broker-dealers and investment advisers, according to the SEC unit that conducts exams and inspections. With employees working from dispersed locations and dealing with increased market volatility, firms may need to adapt their procedures to deal with heightened fraud risks, communications outside of company systems and limited oversight, the SEC said in a risk alert Wednesday.

Baird, has maintained its supervisory processes by continuing to monitor transactions and requiring staff to go on mandatory compliance leaves, said Jack Miller, the company’s head of trading in Milwaukee. The absences allow banks and trading firms to review employees’ communications and trading records while they’re away. Still, the company is thinking about how to adapt to the coronavirus era.

“It has caused us to be hyper-aware of what’s going on and put some critical thought into what we might be missing with folks working from home,” Miller said in a phone interview.

— Additional reporting by Ben Bain

Bloomberg News