MAINTAINING CENTURY-OLD TRUST WITH CUTTING-EDGE COGNITION

Written by | Featured, Scientists' Corner

According to a recent Accenture report, global investment in financial technology (fintech) ventures in the first quarter of 2016 reached $5.3 billion, a 67 percent increase over the same period last year. At the same time, consumer faith in financial institutions has been low for years. This loss of confidence has the potential to eventually undermine financial growth. However, the rise of fintech provides new opportunities to regain and maintain the centuries- old trust in financial institutions.

The 2008-2009 financial crisis started an unprecedented regulatory response across the globe with a focus on risk management. It had wide-ranging implications for financial services including technology and the response to regulation. Regulatory, consumer, and cost pressures have meant that capital market firms needed to look beyond traditional technologies in this new era.

As the financial sector continually evolves, trust is becoming more important than ever. Technologies like blockchain are providing trust through a transparent and federated digital ledger system. Artificial intelligence is providing next generation cybersecurity and surveillance solutions to reduce risk and curtail illicit activity in financial markets.

In a world where trust is being associated with uncrackable crypto algorithms and artificial intelligence, the role of trusted banks and institutions is evolving, and for the third-largest stock exchange in the world, The London Stock Exchange Group (LSEG), trust is being maintained by applying cutting-edge technology.

Chris Corrado was working at IBM as a programmer when he was approached by a recruiting firm specializing in placing mathematically minded personnel in financial services firms. They were looking for a quant. If you’ve read the book, “Flash Boys”, you know that large financial organizations, in addition to spending big on the best hardware, have been scooping up the very best computer science and data analytics talent for some time. But it would be almost 30 years until Michael Lewis would write “Flash Boys” –this was in the mid-80’s. Morgan Stanley had already seen the writing on the wall.chris

Corrado joined Morgan Stanley as a programmer when it was exclusively a capital markets firm. But he rose through the ranks to eventually become Morgan Stanley’s CIO of International IT.

After a decade of covering applications development and infrastructure in Europe and Asia for Morgan Stanley, Corrado served in CTO or CIO roles with Deutsche Bank, Merrill Lynch, AT&T, eBay, Asurion, UBS, and MSCI.

Banks know what they need. And what Corrado offers is at the top of their list. No surprise, then, that once he had amply proved his mettle, the global financial icon, London StockExchange, brought him on as their COO and CIO. At LSEG, Corrado’smission includes providing access to capital formation, intellectual property, and risk and balance sheet management.

For a leader like Corrado who is always focused on innovation, the union of finance and technology is blended into a very effective gradient, propelling his industry to new heights through streamlined technology and a client-oriented experience. And Corrado is putting his experience to work, leveraging the latest innovations to ensure that LSEG, which maintains a $6 trillion short scale market capitalization, remains one of the most trusted financial organizations in the world.

So, just how, specifically, is Chris Corrado redefining trust in an industry enveloped in transformation?

“LSEG is a leading developer and operator of high-performance technology solutions, including trading, market surveillance and post trade systems for over 40 organizations and exchanges globally, including the Group’s own markets–London Stock Exchange, Borsa Italiana and Turquoise,” Corrado explains. “We are building trust through this resilient exchange technology and an operational focus on clearing and the quality of indexes we provide as well as platforms for efficient and high-quality trade reporting.”

An important facet of the drive for change is understood by paying attention to the underlying drivers. The rate of change in fintech is nothing short of breakneck. While industry transformations in finance are often driven by endogenous factors, they are more often brought on by specific exogenous catalysts. And in considering the global transition to a risk-based focus in finance, post 2008, this trend proves true: Corrado isolates the 2008-2009 financial crisis as a chief driver underlying a rethink of the notion of risk as it existed before the crisis.

In a paper prepared for the 2010 Financial Crisis Inquiry Commission by the Booth School of Business at the University of Chicago, the problem of poor risk management was apparent in actions leading to and evident through the crisis. Research and insights acquired by subpoena revealed that in many financial firms, the “preferred explanation for why bank balance sheets contained problematic assets, ranging from exotic mortgage-backed securities to covenant-light loans, is that there was a breakdown of incentives and risk control systems within banks.”

The opportunity to learn from the crisis and re-orient finance came about in the aftermath of 2008. Leaders looked for opportunities to grow without committing the mistakes that had led to the previous disaster. An eye for innovation was instrumental in ensuring a positive growth curve on the way forward–and innovation is what Corrado lives for.

“Innovation is essential to service clients’ needs, so startups and fintech companies are a vital part of the financial services sphere–they complement and support the ecosystem in achieving efficiencies and cost reductions,” he says, referring to leverage of technology to mitigate losses while supporting the link between clients and partners and engendering trust.

With great hopes being tied to new technologies such as the secure, distributed ledger system, blockchain, Corrado is focused on leveraging what is working, albeit with caution.

“Blockchain is an early stage technology that has the potential to drive change across the industry. We are excited about it but believe that the technology needs to be developed in a considered and rigorous manner, in partnership with clients, to provide the right service and benefit to them,” Corrado says. “Amongst other initiatives, we are contributing to a marketwide steering group comprised of clients and other partners to look at the key challenges and opportunities that blockchain and distributed ledger technology more generally offers.”

London Stock Exchange Group has significant technical expertise to bring to the discussion and Corrado sees real opportunity for the technology in trading, particularly in risk management. As has become clear with the meteoric rise of the fintech sector, “driving innovation and developing new products will significantly reduce risk and margin requirements while delivering the opportunity for deeper regulatory oversight.” One of LSEG’s unspoken goals also includes providing and protecting the relationship of trust between all players within its federated network. As a leading developer of high-performance technology solutions for over 40 organizations and exchanges globally, Corrado tells Cognitive Times that LSEG is committed to a collaborative, open source industry effort to advance distributed ledger technology, “as a trusted institution with expertise in post trade and risk management we feel we have a lot to offer the exciting debate that is currently taking place.”

With security being front and center in LSEG’s operations, Corrado references the importance of building secure and dependable relationships, and applying the most cutting-edge available technology.

“This is the future,” he points out. “Essentially, we operate in a sector that can attract bad behavior and it is getting worse. To live safely, we need to proactively predict what undesirable behavior could happen next, and prevent it from happening and/or to ensure that this behavior cannot impact us, or our clients. That is our responsibility, and to do so requires advanced analytics applied through a variety of machine learning algorithms.”

Security is becoming more important than ever. Risk management falls on the shoulders of automated systems, with higher-level validation and investigations becoming the primary duty of analysts. System monitoring is a tedious responsibility where potential for human error and exhaustion is vast. When technology takes on the job of cogency and mitigating risk– whether in fraud, error, or otherwise– the burden of security becomes a little easier to manage.

In handling partner-client relationships as well as monitoring the transition of capital, Corrado says it is imperative for modern-day financial firms to maintain security as a top priority in mitigating the potential threats brought on by high levels of risk. In order to maintain the highest levels of security, Corrado, as he has throughout his career, is staying ahead of the technology before the technology gets ahead of his organization.

Predictive analytics in machine learning and artificial intelligence have been instrumental in scaling the security component of financial risk management. The speed and effectiveness of monitoring risk is extremely important to large digital infrastructures such as those within finance. As the publication, TechEmergence, reported earlier this year, “systems using machine learning can detect unique activities or behaviors (“anomalies”) and flag them for security teams.

The challenge for these systems is to avoid false positives–situations where “risks” are flagged that were never risks
in the first place.” To stay ahead of technological trends, LSEG has been working with SparkCognition, a leading artificial intelligence startup, to develop next-generation surveillance solutions. With a clear understanding of the capabilities and scalability that AI brings to filtering out scams, spoofing, and other unwanted activity, Corrado believes, “this is the future.”

Always honoring the trust between LSEG, their clients, and the market at large, security is top of mind for Corrado. Understanding, avoiding, and preventing cybersecurity and fraud “is our responsibility and to do so requires advanced analytics applied through a variety of machine learning algorithms,” states Corrado. Machine learning technologies address the question of speed and efficiency by isolating system anomalies and learning continually from existing financial activity–whether internal or external to a group’s digital infrastructure–this technology ensures a baseline of security previously unattainable by human standards alone.

By coupling AI and machine learning with the underlying power of computing platforms (hardware, largescale data analytics infrastructure), Corrado indicates that an investment in providing the necessary infrastructure to enable “that level of scalability” is certainly worthwhile. “There are a number of areas where AI can offer significant benefits,” he tells us. “Cybersecurity comes to mind: predictive analytics around maintaining resilient operations, improving the quality or our financial data. Ultimately, this affords us the opportunity to make our people smarter and to make decisions faster.”

Humans will perhaps always be needed to provide strategic guidance, and bear the ultimate responsibility, but the efficiency enabled by AI has proven instrumental in allowing human analysts to provide improved services and support ever-more-complex risk management needs. Algorithms, with their extensive exposure to the inner workings of such a complex system make the perfect information “sponges” that learn, adapt and implement security and trust at machine
scale for large organizations such as LSEG. With much more to come in the AI revolution, and AI-accelerants like quantum computing on the horizon, Chris Corrado is making absolutely certain that the only direction risk management and financial security has to go is up.

 

Last modified: October 26, 2017