QUICK TAKE: AI Ideal For Compliance
Artificial intelligence – AI – can be used for more than just front-office trading.
What about the back office and compliance?
Absolutely, said Peter Rippon, CEO of OpenGamma, in a discussion with Traders Magazine. He said that there is a “pressing need” for funds to use automation to identify the most efficient ways to trade and reduce the burden of compliance.
“It’s common to hear that the rise of artificial intelligence (AI) is forcing funds to rethink their business. However, there are actually operational requirements that can be addressed most easily using AI,” Rippon began. “In a market where regulation has become a huge drag on capital, AI is being used to reduce the burden of compliance. Just look at how complicated MiFID II reporting is proving to be. The way certain rules have been written means firms actually need to generate data in order to comply – which is why machine learning is perfectly suited.”
He continued: “Take the cost and charges disclosure requirements, the problem is that you don’t have the data you need to publish the information required in the first place. For example, with some OTC derivatives, transaction costs cannot be directly observed. As a result, the required information will need to be calculated from large volumes of transaction data.”
Rippon said there is a massive knowledge deficit in understanding how complex regulatory models drive a fund’s capital consumption. Some funds, he explained, are employing quants – which is an expensive burden just to make sense of these models.
“As such, there is a pressing need for technology to automatically identify the most efficient ways to trade,” he said.
WBR report indicates the emerging tech is important, but not mission-critical -- yet.
Velocity is a specialist accelerator for asset managers.
Compliance reporting is still largely manual.
The US exchange completed the acquisition of Sybenetix a year ago.
BIS highlights MiFID II data challenges.