Sapient Catelas The New Regulatory Paradigm
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Transcript of Sapient Catelas The New Regulatory Paradigm
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved.
The new Regulatory Paradigm
How to respond to Dodd-Frank while containing costs
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved. 2
Agenda
What’s the net effect of Dodd - Frank
Current Challenges & How to Respond
Recent Case Studies
Employee Surveillance
A New Comprehensive Approach
Relationships Are the Key
What You Can Do
How Does It Work
Live Demo
Regulatory Fines increase every year – Clearly there is something missing in our Compliance and Risk processes and technology.
Panel Speakers:
Alan MorleyCompliance, RBS Global Banking & Markets
Chris EkonomidisDirector, Business Consulting, Sapient
Eddie CoganCEO and Founder, Catelas, Inc.
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved. 3
Net effect – significant increase in complexity
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved. 4
Net effect – more rules - 421 !!
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved. 5
SEC Chairman Mary Shapiro recently spoke of the "enormous burden" as the SEC shifts resources to create a new regulatory regime for hedge funds - 105 new rules, 20 studies and five offices. Shapiro’s “burden” will translate to increased enforcement/inquiries and additional surveillance rules for everyone involved in the Hedge Fund and Asset Management industries.
“The SEC is going to cast a much broader net to include people on the edge of a fraud,” said Steve Crimmins, a former trial attorney at the agency who’s now at law firm K&L Gates LLP in Washington. “There will be legions more SEC cops on the beat and that will mean a lot more activity.”
Under Dodd-Frank, which was signed into law in July, the SEC can sue an individual who “recklessly” aids a fraud even if the person isn’t aware of the wrongdoing.
The provisions “increase the likelihood of litigation” with fewer quietly settled cases, said David Kornblau, who was the SEC’s top prosecutor from 2000 to 2005
Net effect – increased enforcement, number of inquiries & more surveillance rules
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved. 6
Current Challenges & How to Respond
No more “smoking gun”
Keyword search monitoring – too many false positives
Random sampling – limited value from a risk perspective
Costs are high, process is manual and impact generally accepted as being unreliable with very few ‘successes’
It is no longer enough to “satisfy” compliance requirements. It is far more important to Identify Risk and to Proactively avoid adverse events
Transcripts showed Ms. Chiesi talking with Mr. Kurland, quoting him as telling her in August 2008: "Don't put anything in email.... Don't email even Raj."
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved. 7
“[SEC ] charged a Wall Street investment banker, another securities professional, and one of their friends in a clandestine insider trading ring that netted approximately $1 million in illicit profits by trading ahead of at least 11 mergers, acquisitions, and other corporate deals.”
“coded e-mail messages that referred to securities and money as ‘frequent flyer miles’ and ‘potatoes.’ “
“…Poteroba, Koval, and Vorobiev are each Russian citizens who attended college [together] in the 1990s at the University of New Haven in Connecticut. “
3 players – only one within each firm
Coded emails – not detected by keyword surveillance
Strong Relationships are the indicator of collaboration – good or bad
Recent Cases – Insider Trading
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved. 8
“UBS has filed a lawsuit against three former quant employees alleging that they stole proprietary trading software with the intent of using it at their new employer, Jefferies & Company.“
The three were also accused of starting their new jobs at Jefferies & Co while still employed at UBS.
A FINRA arbitration panel denied the injunction because they claimed that they always sent code to their personal email addresses and there was never a problem before.
Compliance and Risk efforts were inadequate because they did not detect the data breach for years.
UBS Accuses Three Quant Traders Of Stealing Its Code
Recent Cases – Employee Theft
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved. 9
“[FINRA} fined MetLife Securities, Inc., and three of its affiliates a total of $1.2 million for failing to establish an adequate supervisory system for the review of brokers' email correspondence with the public.
…the firms relied on the brokers themselves to forward their emails to supervisors for review…But brokers were able to delete their emails from their assigned computers, thus rendering spot-checks unreliable.“
Certain employees exploited gaps in the compliance implementation and circumvented controls designed to allow MetLife to comply with securities laws.
FINRA Fines MetLife $1.2 Million
Recent Cases – Email Supervision
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved. 10
Early detection = containment!
Employee Turnover Proactively identify departing employees Monitor activity and behavior of departing employees Monitor activity and behavior of new employees
Information Theft Fill gaps in DLP tools by identifying behaviors, not just key words Monitor email behavior to external parties (webmail, press, competitors)
Employee Surveillance
FCPA (Foreign Corrupt Practices Act) Corruption is sophisticated – no one uses key words that would attract attention Physical interviews and searches are often the most powerful tool , but it must be
coordinated and timed to avoid alarming those involved Companies must proactively identify risky relationships and monitor them closely
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved. 11
Information Barrier• Uncover relationships between people within the firm• Include connections outside the firm• Identify information flow• Rank connections based on strength
Benefits• Quickly identify potential breaches• Focus the inquiry• Save time and reduce cost
Employee Surveillance
Insider Trading Identify Interconnections between key individuals (internal & external) Drive physical investigation – Who to interview? What is the nature of your
relationship with X? Who is else may have relevant information? Identify relationship, regardless of language or use of code
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved. 12
List Monitoring• Search Archives with keywords• Uncover who is talking to whom about
which topics• Identify key missing people who did not
use keywords
Benefits
Ensure Corporate wide compliance
without extensive email review
Fast, low cost
Comprehensive
Employee Surveillance
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved. 13
Which of the following issues concern you today (pick one or many)?
• Information Barrier Breaches• Information Theft• Email Supervision• Employee Surveillance & Compliance: FCPA, AML, PII• Other (not listed here)
Audience Poll
?
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved. 14
A New Comprehensive Approach
Traditional data-centric tools: Keyword search - false positives for manual review
Random sampling - false negatives, what’s missed?
Content must be collected; still growing in volume
Many risks involve external parties
Costs are high, process is manual and impact generally accepted as being unreliable with very few ‘successes’
New Perspective – Proactive Relationship Monitoring and Audit Instead of Key Words – focus on people relationships first and then content Allows surveillance of entire email network with same manpower as sampling Proven link analysis methodology used by law enforcement
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved. 15
Catelas Relationship Forensics is a comprehensive approach to compliance & security allowing significant risk reduction around events such as IP theft & information barrier breaches.
With the same manpower, Catelas allows the entire communications network to be monitored not just a sample - without collecting a single email!
Information Barriers
Restricted Lists
Watch Lists
Control Room
Information Security
Trading Strategy
Trading software
Who knows who? What are they saying?
Relationships are the Key
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved. 16
• Surveillance, Compliance & Information Security- Proactive, always-on, comprehensive monitoring and audit solution- View entire corporate communications network through log file analysis,
not just a sample- WITHOUT cost & time of data collection
• Watch Lists, Restricted Lists, Deal Rooms – native email analysis- Who spoke to whom; about what and when- identify if people are talking about issues other than the participants
• Easy to use, deploy and support- Fully automated, non-disruptive- Don’t integrate to exchange or Archive- Deployed in days- Quick time to value
What You Can Do
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved. 17
The Catelas: 1st Comprehensive solution Unique Behavioral Science algorithms
uncover the strong relationships inside & outside firm
Social Network Analysis identifies missing custodians & uncovers ‘friends in common’
Log file analysis allows ENTIRE company network to be uncovered
Advanced Data Analytics uncover IP theft & information flow across barriers
Highly scalable & comprehensive Easy to use, deploy & maintain Low cost of ownership
IMEmail Telephony Log files
Behavioral Sciences
Network Analysis
Data
Analytic
s
Catelas is the first enterprise-wide communications Compliance & Risk solution
How We Do It
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved. 18
BenefitsBusiness Benefits: Risk Reduction: Significantly reduce regulatory risk as EVERY email included No increase in resource:
Same resource, same time – completely audit of information barriers, watch lists etc Networks of interest AUTOMATICALLY created weekly, monthly Investigate Suspicious Activity Reports instantly without IT support – Always-On solution
Non-disruptive to Business & IT No integration No emails collected Deployed in days
Return on Investment: Reduce Regulatory Risk Significantly Improve productivity Cut collection costs by over 80% Cut travel costs as preliminary investigations
conducted centrally
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved. 19
Live Demo
© COPYRIGHT 2010 SAPIENT CORPORATION and Catelas Inc. - All rights reserved. 20
Thank You
Eddie Cogan617 407 [email protected]
Thank You & Stay Tuned for Future Webinars!
Chris Ekonomidis646 207 [email protected] www.sapientglobalmarkets.com
Alan Morley(201) [email protected]
RBS Global Banking & Markets