Securities regulators say they are increasingly employing data analytics and other sophisticated tools to track down financial miscreants faster, but these technologies won’t be able to fully replace human judgment.
The director of enforcement at the Ontario Securities Commission (OSC) said Thursday that they need these tools to crunch the “mind-numbing volume of data” the regulator takes in for investigations, and do it in weeks, not years.
Jeff Kehoe said during a panel discussion at OSC Dialogue 2017 in Toronto that regulators can no longer use traditional tools and investigation techniques in the “new world for us,” with advances such as cryptocurrencies and high-frequency trading.
“It’s like finding a needle in 50 haystacks, or 100 haystacks,” he said. “And so we need tools that not only reduce the size of the haystacks but make the needles bigger.”
Regulators in recent years have put out guidance on the securities implications of blockchain, cryptocurrencies and initial coin offerings as the usage of these technological innovations proliferate. Meanwhile, regulators say they too are applying technological tools to their enforcement tasks, as the volume of data at their disposal grows exponentially.
The monetary authority of Singapore’s executive director of enforcement Gillian Tan said during the OSC event on Thursday it has developed a tool with data scientists to analyze data to detect circular trading patterns.
When testing with known cases, it was able to detect roughly 94 to 96 per cent of what had been detected manually, she added.
“What used to take us months to do, can now be done in a matter of hours,” she said. “That’s really exciting for us.”
The U.S. Securities and Exchange Commission’s co-director of enforcement Stephanie Avakian said it too has used these tools to speed up their probes, but it doesn’t replace the need for experienced investigators to go through the findings and use judgment.
“The data analytics are great for identifying problems and putting together a case, but I don’t think they obviate the need for human investigators… You still need humans to go through this stuff and find the false positives,” she said.
As well, Avakian said when financial misdeeds later go before a jury, human witnesses are still needed to help present their case.
Kehoe added that the “promises of technology are great” but the findings they produce must be reliable and verifiable in order to be fair.