A "smart computer" to detect insider trading

Increasingly fraudsters are devising more sophisticated means of committing fraud, and for the technology companies charged with combating fraud, it always seems like they are playing catch-up. But when the nature of the fraud is more insidious, the challenge is greater, as is the case with insider fraud.

Fraud committed from the inside is more difficult to contend with than external threats. As a company how do you identify who is likely to commit fraud within your organisation? How do you give employees access to applications and systems they need to do their job, without locking everything down or introducing a 'Big Brother' culture?

At the University of Sunderland, they are working on a new "smart computer" that uses artificial intelligence and "headline analysis techniques" to try and detect suspicious share dealing. Insider trading or rogue trades have long plagued the capital markets and some stats suggest that upwards of 20% of deals in the UK, and 40% in the US, may be tainted.

The "smart computer" project at Sunderland is entitled CASSANDRA (Computerised Analysis of Stocks and Shares for Novelty Detection of Radical Activities) and it has been awarded £90,000 by Northstar Funding to investigate the merits of combining artificial intelligence and analysis techniques to combat financial fraud.

Dr Dale Addison, project manager, CASSANDRA, says the problem with current anti-fraud systems is that they generate too many 'false positives'. "As many as 75% false positive flagging has been observed by some systems," he says.

CASSANDRA on the other hand looks at news stories affecting a particular company. So for example if two companies are in the process of merging and someone finds out the merger is not going ahead, they may go out and buy and or sell that company's stock based on that inside knowledge.

According to Addison, CASSANDRA would be able to detect that based on its analysis of news events from Reuters, Bloomberg and other sources, as well as the movement of stocks and shares of a specific company. "This system will have the ability to allow users to look at news information and rank it according to how significant an impact it has had on share dealing." But how do you know which piece of news or information has altered trading in a particular stock?

Information on US and UK stock markets is being provided to the Sunderland team by Canadian company, Measured Markets,which provides an "early warning" analysis service alerting investors when a stock's trading pattern changes.

Dr Addison plans to build a bigger computer that can be used to detect market abuse or false and exaggerated news that helps traders earn more money.

Anti-fraud technologies get smarter

With card fraud and other forms of fraud reportedly on the rise during the economic downturn, anti-fraud management software vendors are having to up their game to play catch-up to the fraudsters.

Business intelligence and analytics vendors such as SAS, focus on not just looking at fraud in terms of monitoring card transactions, but the ability to match seemingly unrelated events across different parts of the business. Its real-time card fraud detection system which is used by banks such as HSBC, reviews card transactions alongside other changes in customer behaviour and then based on that analysis advises in real time as to whether a card transaction should proceed or be flagged for further investigation. Using such a system, HSBC claims to have reduced false positive rates, which is one of the biggest bug bears of any fraud detection system.

But while banks may deploy a system to try and combat the different forms of fraud that are prevalent today, it needs to be flexible enough to predict and detect changes in fraudsters' behaviour patterns in order to avoid detection. Analytics and decision management vendor, Fair Isaac Corporation, is trying to do this in the debit and credit card space with version 6.0 of its Falcon Fraud Manager scoring server, which uses recent advances in fraud analytics and profiling to help banks more quickly identify changing fraud patterns.

Using what it calls, "adaptive analytics", Fair Isaac provides "dynamic, real-time self-calibration of fraud detection models" to help firms more quickly identify changing fraud behavior patterns and improve fraud detection performance.

Another software provider, Actimize has incorporated IBM InfoSphere's Global Name Recognition (GNR) technology into its risk management platform. GNR is designed to help firms overcome challenges in matching names across different cultural and language barriers as part of their financial crime fighting efforts and works by analysing the order of a name, cultural spelling variations, nicknames and different spelling variations.

"[Global Name Analytics] ... can help to identify and correct names that may have been presented in non-standard or incorrect sequential order." It can also identify the "cultural classification" of a person's name using linguistic and statistical tools, which can be useful for Know Your Customer regulations and anti-fraud projects that entail matching names against lists or databases of suspected terrorists or Politically Exposed Persons.

AML on-demand search facility targets smaller firms

With anti-money laundering regulatory compliance costing firms millions to implement, smaller companies are at risk of non-compliance because of the upfront costs and investment typically required to implement the correct assessment and risk management procedures.

“Many firms have responded to the new anti-money laundering regulations but there are still some – particularly smaller firms - that, due to financial constraints, are failing to do so. The outcome could be very serious for those who choose to ignore these regulations resulting in heavy fines and as we have seen recently, prison sentences,” says James Sherwood-Rogers, managing director of Landmark Legal and Financial.

ASP solutions for AML are slowly starting to gain traction in the market and are more likely to appeal to smaller firms that don't want to make the upfront and ongoing investment required to implement and maintain a dedicated AML solution.

Landmark has just announced a new electronic on-demand AML search facility www.landmarkaml.co.uk, for solicitors, which provides a pay-as-you-go type model for undertaking due diligence checks on new clients (companies or individuals). The electronic information service scans data sources such as government databases, databases of Politically Exposed Persons and terrorist sanction files.

Securing laptops remotely

Posted by Anita Hawser


Mobile security is one of the biggest problems companies face. Employees taking laptops out of the company firewall and securing remote workers can be challenging to say the least.

And one does not need to point out that increasingly regulators are taking a dim view of customer data that is loss through company or employee negligence. Last year, the Financial Services Authority in the UK fined Nationwide Building Society £980,000 for the loss of a laptop which contained "confidential customer data" on 11 million customers.

Telecoms/network provider Alcatel-Lucent Bell believes it has the answer to securing remote workers and lap tops with its OmniAccess 3500 Nonstop Laptop Guardian. Invented in Bell Labs, the solution is an "always-on mobile security solution card that remotely secures, monitors, manages and locates a mobile computer and protects laptops and the data that resides on them".

"The mobile blind spot is defined as a condition where enterprises have no visibility or control over the location, use or configuration of employee laptops, increasing the risk of government fines, company reputation and hampering day-to-day operations of organisations. With this technology, enterprises have 24/7 access to employee laptops – enabling them to automatically enforce policies for compliance and deliver software patches and upgrades to their increasingly mobile workforce even if the laptop is turned off."

Forty-five percent of respondents in a recent study of 255 executive level IT, security and compliance decision makers from the US and Germany, admitted they have to deal with mobile blind spots. “The study shows nearly three out of four IT security managers have had to help their company deal with the consequences of a lost or stolen company laptop,” explained Tom Burns, head of Alcatel-Lucent enterprise activities.

An additional 76% said a lost or stolen laptop needed to be protected with more than encryption – for example, having the ability to locate the device using GPS and remotely revoking access to data. This is particularly useful if the laptop has been stolen, although looking at the picture of the mobile security card, a question that springs to mind is what happens if someone removes the device from the lap top?

According to the survey, 50% of companies state they would switch their wireless service to a provider with a security solution that protects lost or stolen laptops used remotely. No surprises then that SingTel of Singapore, Magyar Telekom of Hungary, and broadband carrier IIJ (Internet Initiative Japan Inc.) of Japan have announced they plan to offer the Laptop Guardian as a value-added service over their high-speed HSPA mobile data communications network.

The Laptop Guardian has its own processor, power supply and operating system, and it leverages wireless broadband networks, including next-generation, high-speed 3G GSM/HSPA networks. It has also been integrated with McAfee's Endpoint Encryption software.