Thingalytics_Ch-06_Twitter_880x440“Regulation needs to catch up with innovation.” Henry Paulson, Former United States Secretary of the Treasury
The media frequently portray white-collar criminals as highly intelligent individuals who use sophisticated codes or secret algorithms to commit fraud and manipulate markets. The truth is, most of their activities are fairly amateurish – yet they manage to get away with them for months or even years.

Consider these scenarios:

  • A cadre of interest rate traders conspires to manipulate the London Interbank Offered Lending Rate (LIBOR), using instant messaging platforms and chat rooms.
  • In a private messaging chat room, foreign exchange (FX) traders conspire to move the FX benchmark price.
  • A drunken broker enters his office in the middle of the night and makes an illicit crude oil trade that costs his company millions of dollars.

Somehow, despite ham-fisted and - what should have been - obvious methods, these traders all managed to commit crimes that moved markets and cost people money. How can these be possible in today’s world of regulation? you might wonder.

I think what is missing in financial services markets is a kind of RoboCop. Not the part-human, part-robot of the 1987 film, but a regulatory policing system that monitors a combination of human and market behaviors to detect patterns that signal fraud or error.

Trade monitoring has improved, thanks to a crackdown on high-frequency trading (HFT) by regulators. More can be done and needs to be done, however, as investors grow weary of dark pool shenanigans (where traders can deal in private) and flash crashes.

The process of monitoring the behaviors of traders and other participants is in its infancy. Advances in audio and video analytics will help banks detect unusual human behaviors; for example, if a trader fails to take a vacation for a year or appears abnormally nervous when speaking on his phone during particular trades.

Combining trade and data monitoring with surveillance of the human side of financial markets can alert firms to potential fraud and to problems with automated trading. Patterns can be discovered and crimes can be traced when monitoring and surveillance meet Thingalytics to form our own market RoboCop.

In this chapter we look at:

  • How heavy fines from regulators have made banks more proactive in their risk management practices.
  • The seven essential pillars that a next-generation smart surveillance system must have.
  • How the S&P credit rating agency decided to proactively meet and surpass new regulations.

Thingalytics is not just about creating new applications like smart homes and smart transport systems. It is also about protecting us from things going wrong, sometimes in the very systems it has helped to create! Thingalytics is about policing human- and computer-driven ecosystems, checking that they stay within the law and, if necessary, taking action to ensure they do.


Robocops will be needed in all areas of the Internet of Things - to police the smart systems running our world.


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