{"id":12151,"date":"2016-02-21T09:40:41","date_gmt":"2016-02-21T15:40:41","guid":{"rendered":"http:\/\/hcstx.org\/?p=12151"},"modified":"2016-02-21T09:40:41","modified_gmt":"2016-02-21T15:40:41","slug":"cyber-crime-jp-morgan-invents-algorithm-to-sniff-out-rogue-traders","status":"publish","type":"post","link":"https:\/\/thetacticalhermit.com\/index.php\/2016\/02\/21\/cyber-crime-jp-morgan-invents-algorithm-to-sniff-out-rogue-traders\/","title":{"rendered":"Cyber-Crime: JP Morgan Invents Algorithm to “Sniff Out” Rogue Traders"},"content":{"rendered":"

I swear every day we get closer to the movie “Minority Report” being a reality..the “authorities” knowing you are guilty of a crime before you commit it! Combine this with the current fight with Apple and the FBI you start to see the big SCARY picture. -SF<\/strong><\/em><\/p>\n

\"JP\"<\/p>\n

 <\/p>\n

Wall Street traders are already threatened by computers that can do their jobs faster and cheaper. Now the humans of finance have something else to worry about: Algorithms that make sure they behave.<\/p>\n

JPMorgan Chase & Co., which has racked up more than $36 billion in legal bills since the financial crisis, is rolling out a program to identify rogue employees before they go astray, according to Sally Dewar, head of regulatory affairs for Europe, who\u2019s overseeing the effort. Dozens of inputs, including whether workers skip compliance classes, violate personal trading rules or breach market-risk limits, will be fed into the software.<\/p>\n

\u201cIt\u2019s very difficult for a business head to take what could be hundreds of data points and start to draw any themes about a particular desk or trader,\u201d Dewar, 46, said last month in an interview. \u201cThe idea is to refine those data points to help predict patterns of behavior.\u201d<\/p>\n

JPMorgan\u2019s surveillance program, which is being tested in the trading business and will spread throughout the global investment-banking and asset-management divisions by 2016, offers a glimpse into Wall Street\u2019s future. An industry reeling from billions of dollars in fines for the actions of employees who rigged markets, cheated clients and aided criminals is turning to technology to police itself better. Failure to do so will provide ammunition for those pushing to separate trading operations from retail banks.<\/div>\n

Surveillance Unit<\/h2>\n

At New York-based JPMorgan, the world\u2019s biggest investment bank by revenue, the push comes after government probes into fraudulent mortgage-bond sales, the $6.2 billion London Whale trading loss, services provided to Ponzi-scheme operator Bernard Madoff and the rigging of currency and energy markets.<\/p>\n

The company has hired 2,500 compliance workers and spent $730 million over the past three years to improve operations. Job postings show it is building a surveillance unit to monitor electronic and telephone communication in the investment bank.<\/p>\n

E-mails, chats and telephone transcripts can be analyzed electronically to determine if employees are trying to collude or conceal intentions, said Tim Estes, chief executive officer of Digital Reasoning Systems Inc.<\/p>\n

<\/div>\n

\u201cWe\u2019re taking technology that was built for counter-terrorism and using it against human language, because that\u2019s where intentions are shown,\u201d said Estes, whose company counts Goldman Sachs Group Inc. and Credit Suisse Group AG as clients and investors, but not JPMorgan. \u201cIf you want to be proactive, you have to get people before they act.\u201d<\/p>\n

\u2018Slippery Slope\u2019<\/h2>\n

Automated surveillance is necessary for Wall Street firms because billions of e-mails flow through each bank annually, overwhelming the ability of people to monitor them, according to Estes. Still, technology that predicts behavior, as in the 2002 science-fiction movie \u201cMinority Report<\/a>,\u201d in which Tom Cruise plays a Precrime officer who hunts down murder suspects before they can act, raises ethical questions.<\/p>\n

\u201cWhat they\u2019re trying to do is forecast human behavior,\u201d said Mark Williams, a former Federal Reserve bank examiner who\u2019s now a lecturer at Boston University\u2019s Questrom School of Business. \u201cPolicing intentions can be a slippery slope. Do people get a scarlet letter for something they have yet to do?\u201d<\/p>\n

Care will be taken to strike the right balance in monitoring employees at JPMorgan, said Dewar, a former U.K. regulator. She\u2019s responsible for helping executives at the investment bank implement the new controls, while Chief Control Officer Shannon Warren has oversight of the firm-wide effort.<\/p>\n

The bank wouldn\u2019t describe all of the inputs being used for its predictive program, which specific business it\u2019s being tested on, or what steps will be taken if concerns are raised about an employee.<\/p>\n

Legal Bills<\/h2>\n

A February memo from executives including Chief Operating Officer Matt Zames urged employees to flag compliance concerns to managers and reminded them that scandals hurt bonuses for everyone. Dedicated whistle-blower phone lines and e-mail addresses were created for workers to raise issues anonymously.<\/p>\n

\u201cThe problem we saw last year in FX and the other unacceptable events have implications beyond just a one-time fine,\u201d according to the memo, a copy of which was obtained by Bloomberg News. \u201cThey damage our reputation.\u201d<\/p>\n

New technology is half of a two-pronged effort to reduce legal bills. The other part involves a review of the firm\u2019s culture — reaching into every business and appointing more than 300 leaders in the investment bank — to fix areas where lapses could occur, Dewar said. Training sessions use real JPMorgan incidents as examples so the lessons hit home, she said.<\/p>\n

\u2018Confidence Level\u2019<\/h2>\n

The program was hinted at in a report published in December on the bank\u2019s website, \u201cHow We Do Business,\u201d signed by CEO Jamie Dimon. It outlines ways the firm is improving compliance, including starting a global communications surveillance program.<\/p>\n

\u201cWe recognized that enhancing market conduct would require using multiple preventive and detective levers in a coordinated way,\u201d JPMorgan said in the report.<\/p>\n

Meeting the company\u2019s financial targets depends on reducing legal bills. The investment bank\u2019s return on equity will rise to 13 percent from last year\u2019s 10 percent largely by cutting legal and other expenses, according to a February presentation<\/a>.<\/p>\n

Thousands of investment bank and asset-management employees will be subject to the new predictive monitoring, said Dewar, who spent about a decade at the U.K.\u2019s Financial Services Authority before joining JPMorgan in London in 2011.<\/p>\n

The combination of new surveillance methods and an improved culture should lower the bank\u2019s future legal bills, Williams said. Still, even Dewar acknowledges that the human element involves risks that can\u2019t be eliminated.<\/p>\n

\u201cWe\u2019ll have a much greater confidence level about early detection,\u201d she said. \u201cI don\u2019t think you could ever say it will be 100 percent.\u201d<\/p>\n

Read the Original Article at Bloomberg<\/a><\/strong><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

I swear every day we get closer to the movie “Minority Report” being a reality..the “authorities” knowing you are guilty of a crime before you commit it! Combine this with the current fight with Apple and the FBI you start to see the big SCARY picture. -SF   Wall Street traders are already threatened by…<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_newsletter_tier_id":0,"jetpack_publicize_message":"","jetpack_is_tweetstorm":false,"jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false}}},"categories":[2122,13,74,1317,4126,3929,1814,1635,3986,65,3712],"tags":[4756,4757,4758,4759,4760,4761],"jetpack_publicize_connections":[],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/thetacticalhermit.com\/index.php\/wp-json\/wp\/v2\/posts\/12151"}],"collection":[{"href":"https:\/\/thetacticalhermit.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thetacticalhermit.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thetacticalhermit.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thetacticalhermit.com\/index.php\/wp-json\/wp\/v2\/comments?post=12151"}],"version-history":[{"count":0,"href":"https:\/\/thetacticalhermit.com\/index.php\/wp-json\/wp\/v2\/posts\/12151\/revisions"}],"wp:attachment":[{"href":"https:\/\/thetacticalhermit.com\/index.php\/wp-json\/wp\/v2\/media?parent=12151"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thetacticalhermit.com\/index.php\/wp-json\/wp\/v2\/categories?post=12151"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thetacticalhermit.com\/index.php\/wp-json\/wp\/v2\/tags?post=12151"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}