RegTech: is there an artificially intelligent Big Brother watching you?

I just came back from sabbatical (it was great, but you knew that already). I’ve come back charged up and with stars in my eyes from what some of my colleagues call a sect, Singularity University. Well true that the founders want to make the world a better place, and that some of them could become god-wannabes when they will have artificial intelligence implanted in their brains and will have been able to fight ageing through DNA nano-modification and thousands of top notch anti-oxidant pills but to me right now they are just great crazy people who hope to make a difference through the exponential power technology has – and I am proud to be one of their alumni. So… what’s in it for you? Well FinTech, I guess. I am currently trying to look at what Artificial Intelligence (AI) will change in capital markets. The good news is: you already all know what AI is, even though some of you may be scared by it. But here I am not going to look at what AI will do in your bodies, just in your day-to-day jobs (not that scary, or so you may think). What many of our clients (buy side, sell side, exchanges, info providers, tech providers) have been trying to figure out in the past few years is what are they going to do with all the data they have. They have built or bought Big data softwares that parse, recognize, organize data and create products thanks to this data, whether algorithms that find trading opportunities through structured and unstructured data or corporate investor relations service that highlights where in the world is there a bad news about a specific company and what to do about it live via a data push, or even just create trade pairs when there are no matches in illiquid markets. So far, so good. What our clients are facing now at an increasing (did I say exponential?) pace is something bigger than this, what we call RegTech. Think of the current regulatory environment where you all have to adapt to MiFID II and EMIR and T2S and CSDR etc. at the same time. You all have to create new business models, technology or operations systems that will enable your company to abide by these new regulations. But RegTech is more than that: it is also the technology that you have to use to force change within your organization so that you can prove your bankers are acting in the best interest of their clients, say even in FX, where there are no real regulatory changes, but a lot of regulatory willingness to change things right now. These could be artificial intelligence machine learning algorithms that know how a typical FX trader acts and how the computer should block the non-compliant tentative trades or even just do the trades in a compliant way instead of the trader itself? You can’t really fire all your FX traders in one go and replace them all with AI computers, but you get my point. Even further than that, and I think where it gets scary, regulators, governments and supranational watchdogs are building (or have built already? Brownie points for who knows the answer to this one) big machine learning type AI to monitor what all the buy side, sell side, exchanges, trading platforms and hedge funds do on the markets, and off the markets through BIC accounts, every day, every minute, every second. When these smart systems see that somebody out there is not doing what he/she is supposed to be doing, even just from a simple compliance stand-point, his/her company will be in deep trouble. Of course I don’t expect the SEC or FCA or Consob telling us that they are building them, but there is more than meets the eye, get ready for this change to arrive at a watchdog near you.