By Vangelis Tsianaxis, head of risk and compliance consulting at IPC
A critical factor to innovating in capital markets and trading
There has been a lot of debate on the value and future of voice trading. Much of it has been generated by the potential effects of MiFID and best execution focus by regulators globally making it is clear voice trading is here to stay. Any market participant able to innovate in the future needs to understand how trading decisions are made in this environment. Voice trading through its generation of data points critical to trade decisions can offer that valuable insight. Voice transcription technology can integrate data into the day-to-day processes of all market participants and enable the generation of fit-for-purpose structured data to utilise across trading lifecycle processes.
With automation and AI capabilities, why voice trade?
In the last few years, market participants have automated processes towards enabling STP (straight through processing) downstream from the trading decision. The key drivers for these technological investments have been to:
- Manage return on equity vs. cost of capital ratio
- Meet regulatory transparency requirements
A lot of focus has been placed on eliminating data breaks that lead to manual intervention, rework, and cost.
This automation produces significant benefits for managing the cost of transacting, certain market activities, such as equities trading, and processes in the lifecycle, mainly past the point of the trade decision. As automation increases across the market and its participants, efficiencies in parts of the end-to-end trade lifecycle that used to be revenue generating are becoming commoditised nevertheless, as the return on further automation of this type is diminishing. Decisions automated through algorithmic trading, however, still depend on the ability to keep feeding relevant intelligence back into the automation loop.
In essence, the challenges for most market participants remain the same, in terms of generating value for their clients by:
- Being savvy in addressing liquidity challenges
- Producing tangible value for clients through best execution like making good, cost-effective investment decisions
- Being transparent about the ability to generate this type of value to their clients and to regulators.
Delivering on all these requirements is dependent on keeping the pulse of the market, talking to the other participants and having advanced capabilities to manage the communications intelligence generated by these interactions. That type of capability can be achieved by integrating such intelligence alongside other data points related to the client and the market and making them easily and readily available to client-facing functions.
Indeed, the opportunity for significant innovation and differentiation in the market lies in the efficiency and effectiveness of your front office’s client relationship management and interactions. The integration of voice-generated data is still a large, untapped opportunity. Traditionally, it has been seen as a technical challenge due to the perceived complexity of managing the data.
As such, the ability to fully realise the value of automation depends on controlling the quality of data generated at the point of making the investment decision and initiating an order, the decision point during a telephone conversation. Even existing automation downstream to the trade decision needs better data from the voice trading environment. Voice trading is critical to realising these competitive advantages.
Competitive advantage and asset managers
Utilising such intelligence about clients is particularly important to asset managers as their business models are changing with many turning to outsourcing, offshoring, smart sourcing, and digitalisation of their support functions. Essentially, the asset manager business model is shifting towards reducing non-core activities, i.e., those that do not impact their client interactions directly.
These players depend on maintaining and enhancing high touch, voice communication-driven activities within the firm, to ensure they:
- Differentiate themselves in the market, through personalised services and confidence in the decisions they make, particularly on behalf of their most valuable clients
- Maintain higher margins by offering more innovative, higher value deals to clients
- Create new opportunities by innovating the way they provide services and address investment needs.
As the model of managing the middle and back office changes, generating good input data becomes critical to ensuring you can focus on the core business of managing clients. It is also critical to have good post-execution data to have the right intelligence and to enable the next great interaction with the client with the support of these partners.
Automation improvements and deals where a lot of the interactions and decision making happens on a phone call
The opportunities that exist when turning voice into structured data can allow businesses to:
- Reduce the cost of highly valued individuals (traders, portfolio managers, brokers) working on mundane tasks such as data input for an order and responding to inquiries about data completeness from other functions such as risk and compliance.
- Integrate the intelligence generated by the execution of orders fast and reliably to enable better decisions on best execution, particularly in fast moving markets such as FX trading.
- Capture accurately and timely trade events generated through voice communications to support effective TCA (transaction cost analysis) for transactions.
- Manage the data completeness and speed of capturing a decision to trade within an order system, allowing effective enrichment of the data to support execution and post-trade activities and reporting.
- Enable risk and compliance decisions based on more readily available data and automation on the trade decision made over the phone, including surveillance and ongoing reporting to the market and regulators.
Indeed, businesses should tap into the unused intelligence offered by the voice conversations of key employees when they are making decisions to trade. Using the conversations to tap into the critical data points referred to in these conversations can generate intelligence that creates an edge in ongoing trade decisions. This data can be generated by voice transcription technology that is specifically targeted to trading environments to ensure a greater effectiveness of the data capture.
STOP THE CONFUSION: HOW TO KNOW IF YOUR BUSINESS MAY BE INSURED AGAINST COVID-19
By Alex Balcombe, Partner at Harris Balcombe
The last few weeks has seen businesses in hospitality, tourism, retail, leisure and more forced to close their doors following the Government’s orders that they should close to prevent the spread of coronavirus.
While this is expected to flatten the curve and reduce the number of coronavirus cases, it will of course have an impact on businesses and employees alike. For small businesses especially, there are many concerns about how they can claim on their insurance to weigh the fall of this impact.
In response to calls to help struggling businesses, the Government has informed the public that companies who are facing turmoil will be able to claim on their business interruption insurance during this difficult time. For most, this is wrong.
The insurance industry has also been extremely vocal that there is no cover for any coronavirus-hit businesses during this tough financial period. This isn’t strictly true either.
How can businesses see through the mixed messaging and best secure their future and their livelihoods and reduce money worries? It’s an extremely stressful time for many companies, and confusion over whether or not they can be covered can only cause more unnecessary stress.
Since it’s a new disease, most businesses will not be covered for business interruption due to COVID-19. In fact, the vast majority of policies do not cover anything related to COVID-19.
That said – don’t rule out the idea that you may be covered. There is a chance that you will be covered against COVID-19, but not know it. This is a very small chance, but your current cover may already protect your business against the consequences of coronavirus, and the nationwide response to it – though those with this cover are unlikely to realise it.
How Could I Be Covered?
Not everyone has business interruption insurance, as it’s not a legal requirement. It is entirely up to the policy holder to weigh up the benefits of having it, and their ability to trade should a disaster happen.
To be considered for cover for COVID-19, there are two types of policy extensions to your business interruption cover that can potentially cover you for this situation:
Infectious Disease Extension
Many policies expressly state which diseases fall within the realm of being an infectious or notifiable disease. If this is the case, your policy will not provide cover. As it is a new disease, these policies will not have included COVID-19.
Other infectious disease extension policies will define the disease with reference to the actions of the government. Since the UK Government has named COVID-19 as a notifiable disease throughout the UK, it is possible that your business may fall into this definition, thus meaning you may be able to make a claim.
However, again, it’s not always that simple. Many policies require the disease to have been on your premises, while others specify a radius from your premises in order to qualify.
Denial of Access Extension (non-damage)
Denial of Access Extension (non-damage) policies may cover you if you’re prevented from accessing your property. This could be due to an event, or by the actions of a competent authority, which could cause your business interruption cover to engage.
If covered by this clause, there are often very subtle differences in wording in your policy. This could depend on the insurer or policy. You may well be covered, but it will depend on your particular circumstances, and the specific policy wording.
It’s clear that the Government needs to do more in ensuring there is clear messaging for businesses, and to help the insurance market look after policy holders. This is an unprecedented situation, and with many people looking to claim on their insurance, we’re already seeing major delays which could have a domino impact.
People throughout the world are understandably facing all kinds of worries because of the current pandemic. Our ways of living have changed, and many business owners will not have experienced a situation like this in their life times. If you own a business and are unsure about whether you can claim for business interruption, or are confused about ambiguous wording, get in touch with a loss assessor.
These claims are not simple, but loss assessors will be experts in business interruption insurance, and will specialise in large and complex claims. They will be able to help and guide you along the way, check your wording and work on your behalf to make sure you get everything you are entitled to.
HARNESSING ANALYTICS IN THE FIGHT AGAINST FRAUD
By Anna Lykourina, EMEA Fraud Analytics Expert at SAS
In the past, the fight against fraud has been a bit hit-and-miss. It has relied on auditors to identify patterns of behaviour that just didn’t quite fit. They often only detected problems months after the event. And then organisations had to claw back stolen funds through legal processes.
In a world where transactions happen in under a second, however, this is no longer acceptable. We need to be able to detect fraud immediately, if not before it happens. Customers want safe and protected data that is not vulnerable to identity theft through company systems. But they still want to be able to pay online and in seconds. The stakes are high, but fortunately new tools and techniques in fraud analytics are enabling companies to stay ahead of fraud.
Trusting machines to do the work
Machines are much better than humans at processing large data sets. They are able to examine large numbers of transactions and recognise thousands of fraud patterns instead of the few captured by creating rules. On the other hand, fraudsters have become adept at finding loopholes. Whatever rules you set, it is likely that they will be able to get ahead of them. But what if your system was able to think for itself, at least to a certain extent?
New approaches to fraud prevention combine rules-based systems with machine learning and artificial intelligence-based fraud detection systems. These hybrid systems are able to detect and recognise thousands of fraud patterns and learn from the data. Automated analytical-based fraud detection systems can reveal novel fraud patterns and identify organised crime more consistently, efficiently and quickly. This makes them a good investment for businesses across a wide range of sectors, including public sector, insurance, banking, and even healthcare or telecommunications.
How, though, can you harness analytics as a tool in your fight against fraud?
Identifying needs and solutions
The first step is to identify which options you need. Probably the best way to do this is through a series of company-wide workshops with the fraud analytics experts to determine what analytics you need, which data to include and techniques to use, and what results to report. They can also identify the ideal combination of rules-based and AI/ML approaches to detect fraud as early as possible.
Companies looking towards advanced analytics for fraud detection will need to make a number of decisions. They will need to optimise existing scenario threshold tuning, explore big data, develop and interpret machine learning models for fraud, discover relevant information in text data, and prioritise and auto-route alerts. There may be industry-specific decisions to make, too, such as automating damage analysis through image recognition in the insurance sector. By automating these areas, companies can both significantly reduce human effort – reducing costs – and improve their fraud detection and prevention.
Benefits of an analytical approach to fraud detection and prevention
Companies that are already using an analytical approach for fraud prevention have reported several important benefits. First, the quality of referrals for further investigation is better. Investigators also have a much clearer idea of why the referral has been made, which improves the efficiency of investigation. Analytics also improves investigation efficiency by reducing the number of both false positives (that is, alerts that turn out not to be fraud) and false negatives (failure to spot actual frauds). This improves customer experience and reduces risk to the company.
Analytics makes it possible to uncover complex or organised fraud that rules-based systems would miss. Companies can group together customers and accounts with similar behaviors, and then set risk-based thresholds appropriate for each scenario.
There are several sector-specific benefits too. For example, insurance firms can identify fraudulent claims faster to prevent improper payments from going out. Claims investigation is likely to be more consistent because claims are scored through technology, algorithms and analytics, rather than by people. Finally, it becomes possible to shorten the claims process through automated damage analysis. It is no wonder that organizations across a wide range of sectors are placing analytics at the heart of their anti-fraud strategy.
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