EXCLUSIVE: “Watch What You Say” – Peter Snasdell, Devexperts in ‘The Fintech Magazine’

In the wake of multi-million dollar SEC fines for unregulated off-channel-trading comms, Peter Snasdell from Devexperts explores how AI could keep firms compliant

Internal communications were changed forever by the pandemic. Forced online out of necessity, we all found we relied on instant messaging more than we had before, after the big reset. And while it hasn’t replaced email as the most-used digital comms tool in the workplace yet, it’s certainly a lot more popular. For a highly regulated industry like capital markets, this presents a problem. Encrypted services such as WhatsApp and Telegram might be great for protecting conversations you’d prefer the whole office didn’t see, but they are also a potential channel for insider trading.

The regulator of the world’s largest financial market, the US Securities and Exchange Commission (SEC) recently issued multiple fines for firms found guilty of record-keeping failures, specifically relating to this ‘off-channel’ communication between staff. That’s not to say any of these firms, including BNY Mellon, Stifel, Nicolaus & Company and Invesco, were guilty of malpractice, but, given how sensitive this area is, unrecorded communication presents a real threat to the integrity of the business.

According to the SEC, it ‘uncovered pervasive and longstanding use of unapproved communication methods… As described in the SEC’s orders, the firms admitted that during the periods relevant to each order, their personnel sent and received off-channel communications that were records required to be maintained under securities laws’.

The messages were sent using several apps on personal devices, including iMessage, WhatsApp and Signal. One of the most recent fines ordered at least 11 firms to pay more than $88m combined as a result. The rules are pretty clear. What’s not is how an increasingly flexible working landscape can stay compliant. Hybrid and remote work is now a norm across all industries.

According to Forbes Advisor, 63 per cent of workers in the UK work remotely either all or some of the time and businesses now have less control over the channels of communication being used between them than ever before.

The workforce is getting younger, too, and it’s leading to wider adoption of channels like WhatsApp as its default mode of keeping in touch with friends, peers and coworkers. Something clearly needs to be done to help regulated industries keep on the right side of the law when it comes to communication, but the key is finding the right balance between flexibility and compliance.

Peter Snasdell has worked in investment banking since 1996 and has seen how technology has changed the industry. “I come from a time of using phones and writing on pieces of paper to trade!” he says.

Now, as senior vice president for Devexperts in the US, the trading software provider, Snasdell has been paying close attention to the recent activity at the SEC.

“Regulators are hot on off-channel communication because in the past it’s been used to create advantages for some investors and disadvantages for others. There have been instances of market manipulation,” he says. “With financial markets as interconnected as they are globally, whatever the SEC does is going to have an impact on every single regulator around the world.”

Mobile communication ‘presents a massive challenge for regulators and a reputational risk for the banks and individuals involved’, says Snasdell.

“AI systems can monitor communications in real time, flagging potential complianceissues before they become an issue. For a regulator, that’s manna from heaven”

“If the wrong thing is said, it can have a disastrous effect on a business’ bottom line. So there have to be checks and balances in place to make sure that digital communication is being used correctly.”

While generative AI is only likely to accelerate growth in the internal and unified comms sector, who’s to say AI couldn’t also help keep ‘off-channel’ communication compliant?

“AI systems today can monitor communications in real time, flagging potential compliance issues before they become a problem,” agrees Sansdell. “For a regulator, that’s manna from heaven, so I think there’s going to be a lot more communication between companies like ourselves and regulators, to get to a situation where the AI does what regulators need it to do while also being useful for companies.”

Keeping it above board

When it comes to communication with clients, Devexperts’ product, Devexa leverages AI to provide a communication platform for retail and institutional brokers, prop trading firms, institutional brokers, trading signal providers, and trading media portals by combining live chat, video calls, screen sharing, broadcasting, and chatbots into a single interface. The AI-powered virtual assistant functions as a widget embedded into trading platforms, websites, and landing pages.

The idea is that all user interactions across these channels can be captured and monitored in one place and that data is then stored to create a consolidated audit trail, precisely avoiding the discrepancies that companies have fallen foul of. No one program can be expected to serve all firms in multiple jurisdictions, says Snasdell.

“Whether you’re a broker or a prop trader or a hedge fund or investment bank, you’re going to have to choose the AI product that suits your needs.”

But large language models (LLMs) are more than capable of learning what’s required in a specific context. Devexa understands trading and investment slang and can banter like the best broker. By helping to automate many of the routine tasks of a brokerage operation or a bank operation, the AI could potentially lighten the load on an employee in areas of overwhelm which are perhaps linked to quick off-channel exchanges taking place in the first place.

Ultimately, Snasdell says, this machine has learned what it takes to stay compliant and provides the necessary guardrails for the trading body. Devexperts sees itself as part of a wider movement of adopting AI tools for meaningful purposes.

“We’re in the early stages of a productivity J-curve where institutions are retooling their tech suite to operate with AI,” says Snasdell. “People need to learn where they fit into that and how they interact with the program, before we start to see productivity really take off. With Devexa, at the moment we have a fairly large amount of human interaction – so a human can take over the interaction at any time and start talking.

“But as we get more comfortable with using AI and letting it do its own thing, we’re going to see productivity increase and the level of human interaction decrease over time.”

As for the future, he’s optimistic, perhaps because of how he has seen technology change so dynamically over the course of his years in the industry. “I’m still here!” he jokes.

“I think people are unduly scared by the role of AI. Human interaction is still needed to run markets and a human will always be the decider of what gets traded and why.

“I think what AI is going to do – what it is already doing – is enhance that process and make our job 10 times easier with less paperwork, less keystrokes, and less reporting.

“As a result, I personally believe people are going to have more time to focus on what they need to do.”

This article was published in The Fintech Magazine Issue 33, Page 32-33