The new Regulatory ParadigmHow to respond to Dodd-Frank while containing costs<br />
Agenda<br />What’s the net effect of Dodd - Frank<br />Current Challenges  & How to Respond<br />Recent Case Studies<br />...
Net effect – significant increase in complexity<br />
Net effect – more rules  - 421 !!<br />
Net effect – increased enforcement, number of inquiries & more surveillance rules<br />SEC Chairman Mary Shapiro recently ...
Current Challenges & How to Respond <br />No more “smoking gun”<br />Keyword search monitoring – too many false positives ...
3 players – only one within each firm<br />Coded emails – not detected by keyword surveillance<br />Strong Relationships a...
UBS Accuses Three Quant Traders Of Stealing Its Code<br />“UBS has filed a lawsuit against three former quant employees al...
FINRA Fines MetLife $1.2 Million<br />“[FINRA} fined MetLife Securities, Inc., and three of its affiliates a total of $1.2...
Employee Turnover<br /><ul><li>Proactively identify departing employees
Monitor activity and behavior of departing employees
Monitor activity and behavior of new employees</li></ul>Early detection = containment!<br />Information Theft<br /><ul><li...
Monitor email behavior to external parties (webmail, press, competitors)</li></ul>Employee Surveillance<br />FCPA (Foreign...
Physical interviews and searches are often the most powerful tool , but it must be coordinated and timed to avoid alarming...
Companies must proactively identify risky relationships and monitor them closely</li></li></ul><li>Insider Trading<br /><u...
Drive physical investigation – Who to interview?  What is the nature of your relationship with X?  Who is else may have re...
Identify relationship, regardless of language or use of code</li></ul>Information Barrier<br /><ul><li>Uncover relationshi...
Include connections outside the firm
Identify information flow
Rank connections based on strength</li></ul>Benefits<br /><ul><li>Quickly identify potential breaches
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Sapient Catelas The New Regulatory Paradigm

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The passing of the Dodd–Frank Wall Street Reform &amp; Consumer Protection Act will lead to new rules that will increase the burden and cost of compliance.

Communication networks are a proxy for the relationships, interactivity and information flow that underpin how commerce is transacted. Catelas is the first solution to provide true transparency into how an organization lives and breathes, allowing compliance officers to monitor behavior, data flow, and relationships inside and outside the company without collecting a single email.

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  • UBS loses trade secrets theft caseFeb 22 2010The US Financial Industry Regulatory Authority (FINRA) has ruled against UBS in its allegations that three of its former employees stole an algorithmic trading code used by the bank.The arbitration case found in favour of the three employees – JatinSuryawanshi, ParthaSarkar, and Sanjay Girdhar. According to the UBS complaint, they were accused of misappropriating trade secrets, breach of contract, breach of fiduciary duty, unfair competition and “other wrongdoing” while they were employed by UBS Securities.They were accused of obtaining proprietary company information – in this case the source code for UBS’s algorithmic trading programmes. They were then planning to give the source code to their new employees at investment bank Jefferies &amp; Co, according to the report which appeared in Securities Industry News.Reports said that Sarkar had allegedly copied 25,000 lines of computer source code from UBS computers. This was roughly equal to the length of one algorithm, or parts of several. He then allegedly emailed this code to this personal email account. Suryawanshi was also accused of attempting to hide his colleague’s theft by deleting the records from a UBS computer.The three were also accused of starting their new jobs at Jefferies &amp; Co while still employed at UBS. Suryawanshi was accused of a breach of fiduciary duties by poaching the other two programmers to work for other investment bank. The three former UBS employees had denied the charges.Citing an unnamed source, the report said that the ruling ends the dispute, with neither party seeking further action. All requests for injunctions or damages were rejected, and the arbitration fees will be split between UBS and the three former employees.Of the three member arbitration panel, one member dissented the final decision but no further explanation was given, the report said.“We are absolutely delighted to have this put behind them so that they, and Jefferies, can go forward,” said lawyer Lance Gotko, who represented the former UBS programmers.FINRA said it does not comment on the results of its arbitration cases. UBS has also declined to comment.
  • Info Security and Litigation investigations for too long have been focusing on the wrong thing…. DATA rather than PEOPLE. The Catelas solution is turning investigations back to old fashioned police work. Rather than searching for the smoking gun, Catelas first dusts for finger prints to identify people potentially connected to the crime and at the scene of the crime at the time of the crime. Rather than focussing on data and content first, Catelas concentrates on people and relationships first, communications activity second and data third.In so doing we are cutting the time it takes to investigate cases by 40-90% - staggering, unheard of savings … by focusing on the RIGHT PEOPLE and the EXACT communication exchanges.
  • Sapient Catelas The New Regulatory Paradigm

    1. 1. The new Regulatory ParadigmHow to respond to Dodd-Frank while containing costs<br />
    2. 2. Agenda<br />What’s the net effect of Dodd - Frank<br />Current Challenges & How to Respond<br />Recent Case Studies<br />Employee Surveillance <br />A New Comprehensive Approach<br />Relationships Are the Key<br />What You Can Do<br />How Does It Work<br />Live Demo<br />Panel Speakers:<br />Alan Morley<br />Compliance, <br />RBS Global Banking & Markets<br />Chris Ekonomidis<br />Director, Business Consulting, Sapient<br />Eddie Cogan<br />CEO and Founder, <br />Catelas, Inc.<br />Regulatory Fines increase every year – Clearly there is something missing in our Compliance and Risk processes and technology.<br />
    3. 3. Net effect – significant increase in complexity<br />
    4. 4. Net effect – more rules - 421 !!<br />
    5. 5. Net effect – increased enforcement, number of inquiries & more surveillance rules<br />SEC Chairman Mary Shapiro recently spoke ofthe "enormous burden" as the SEC shifts resources to create a new regulatory regime for hedge funds - 105 new rules, 20 studies and five offices. Shapiro’s “burden” will translate to increased enforcement/inquiries and additional surveillance rules for everyone involved in the Hedge Fundand Asset Management industries. <br />“The SEC is going to cast a much broader net to include people on the edge of a fraud,” said Steve Crimmins, a former trial attorney at the agency who’s now at law firm K&L Gates LLP in Washington. “There will be legions more SEC cops on the beat and that will mean a lot more activity.” <br />Under Dodd-Frank, which was signed into law in July, the SEC can sue an individual who “recklessly” aids a fraud even if the person isn’t aware of the wrongdoing. <br />The provisions “increase the likelihood of litigation” with fewer quietly settled cases, said David Kornblau, who was the SEC’s top prosecutor from 2000 to 2005<br />
    6. 6. Current Challenges & How to Respond <br />No more “smoking gun”<br />Keyword search monitoring – too many false positives <br />Random sampling – limited value from a risk perspective<br />Costs are high, process is manual and impact generally accepted as being unreliable with very few ‘successes’<br />Transcripts showed Ms. Chiesi talking with Mr. Kurland, quoting him as telling her in August 2008: "Don't put anything in email.... Don't email even Raj."<br />It is no longer enough to “satisfy” compliance requirements. It is far more important to Identify Risk and to Proactively avoid adverse events<br />
    7. 7. 3 players – only one within each firm<br />Coded emails – not detected by keyword surveillance<br />Strong Relationships are the indicator of collaboration – good or bad<br />“[SEC ] charged a Wall Street investment banker, another securities professional, and one of their friends in a clandestine insider trading ring that netted approximately $1 million in illicit profits by trading ahead of at least 11 mergers, acquisitions, and other corporate deals.”<br />“coded e-mail messagesthat referred to securities and money as ‘frequent flyer miles’ and ‘potatoes.’ “ <br />“…Poteroba, Koval, and Vorobiev are each Russian citizens who attended college [together] in the 1990s at the University of New Haven in Connecticut. “<br />Recent Cases – Insider Trading<br />
    8. 8. UBS Accuses Three Quant Traders Of Stealing Its Code<br />“UBS has filed a lawsuit against three former quant employees alleging that they stole proprietary trading software with the intent of using it at their new employer, Jefferies & Company.“<br />The three were also accused of starting their new jobs at Jefferies & Co while still employed at UBS. <br />A FINRA arbitration panel denied the injunction because they claimed that they always sent code to their personal email addresses and there was never a problem before.<br />Compliance and Risk efforts were inadequate because they did not detect the data breach for years.<br />Recent Cases – Employee Theft<br />
    9. 9. FINRA Fines MetLife $1.2 Million<br />“[FINRA} fined MetLife Securities, Inc., and three of its affiliates a total of $1.2 million for failing to establish an adequate supervisory system for the review of brokers' email correspondence with the public.<br />…the firms relied on the brokers themselves to forward their emails to supervisors for review…But brokers were able to delete their emails from their assigned computers, thus rendering spot-checks unreliable.“<br />Certain employees exploited gaps in the compliance implementation and circumvented controls designed to allow MetLife to comply with securities laws.<br />Recent Cases – Email Supervision<br />
    10. 10. Employee Turnover<br /><ul><li>Proactively identify departing employees
    11. 11. Monitor activity and behavior of departing employees
    12. 12. Monitor activity and behavior of new employees</li></ul>Early detection = containment!<br />Information Theft<br /><ul><li>Fill gaps in DLP tools by identifying behaviors, not just key words
    13. 13. Monitor email behavior to external parties (webmail, press, competitors)</li></ul>Employee Surveillance<br />FCPA (Foreign Corrupt Practices Act)<br /><ul><li>Corruption is sophisticated – no one uses key words that would attract attention
    14. 14. Physical interviews and searches are often the most powerful tool , but it must be coordinated and timed to avoid alarming those involved
    15. 15. Companies must proactively identify risky relationships and monitor them closely</li></li></ul><li>Insider Trading<br /><ul><li>Identify Interconnections between key individuals (internal & external)
    16. 16. Drive physical investigation – Who to interview? What is the nature of your relationship with X? Who is else may have relevant information?
    17. 17. Identify relationship, regardless of language or use of code</li></ul>Information Barrier<br /><ul><li>Uncover relationships between people within the firm
    18. 18. Include connections outside the firm
    19. 19. Identify information flow
    20. 20. Rank connections based on strength</li></ul>Benefits<br /><ul><li>Quickly identify potential breaches
    21. 21. Focus the inquiry
    22. 22. Save time and reduce cost</li></ul>Employee Surveillance<br />
    23. 23. List Monitoring<br /><ul><li>Search Archives with keywords
    24. 24. Uncover who is talking to whom about which topics
    25. 25. Identify key missing people who did not use keywords</li></ul>Benefits<br /><ul><li>Ensure Corporate wide compliance without extensive email review
    26. 26. Fast, low cost
    27. 27. Comprehensive</li></ul>Employee Surveillance<br />
    28. 28. Which of the following issues concern you today (pick one or many)?<br /><ul><li>Information Barrier Breaches
    29. 29. Information Theft
    30. 30. Email Supervision
    31. 31. Employee Surveillance & Compliance: FCPA, AML, PII
    32. 32. Other (not listed here)</li></ul>Audience Poll<br />?<br />
    33. 33. A New Comprehensive Approach<br />Traditional data-centric tools: <br />Keyword search - false positives for manual review<br />Random sampling - false negatives, what’s missed?<br />Content must be collected; still growing in volume<br />Many risks involve external parties<br />Costs are high, process is manual and impact generally accepted as being unreliable with very few ‘successes’<br />New Perspective – Proactive Relationship Monitoring and Audit<br /><ul><li>Instead of Key Words – focus on people relationships first and then content
    34. 34. Allows surveillance of entire email network with same manpower as sampling
    35. 35. Proven link analysis methodology used by law enforcement</li></li></ul><li>Catelas Relationship Forensics is a comprehensive approach to compliance & security allowing significant risk reduction around events such as IP theft & information barrier breaches. <br />With the same manpower, Catelas allows the entire communications network to be monitored not just a sample - without collecting a single email!<br /><ul><li>Information Barriers
    36. 36. Restricted Lists
    37. 37. Watch Lists
    38. 38. Control Room
    39. 39. Information Security
    40. 40. Trading Strategy
    41. 41. Trading software</li></ul>Who knows who? <br />What are they saying?<br />Relationships are the Key<br />
    42. 42. <ul><li>Surveillance, Compliance & Information Security
    43. 43. Proactive, always-on, comprehensive monitoring and audit solution
    44. 44. View entire corporate communications network through log file analysis,not just a sample
    45. 45. WITHOUT cost & time of data collection
    46. 46. Watch Lists, Restricted Lists, Deal Rooms – native email analysis
    47. 47. Who spoke to whom; about what and when
    48. 48. identify if people are talking about issues other than the participants
    49. 49. Easy to use, deploy and support
    50. 50. Fully automated, non-disruptive
    51. 51. Don’t integrate to exchange or Archive
    52. 52. Deployed in days
    53. 53. Quick time to value</li></ul>What You Can Do<br />
    54. 54. Catelas is the first enterprise-wide communications Compliance & Risk solution<br />The Catelas: 1st Comprehensive solution<br /><ul><li>Unique Behavioral Science algorithms uncover the strong relationships inside & outside firm
    55. 55. Social Network Analysis identifies missing custodians & uncovers ‘friends in common’
    56. 56. Log file analysis allows ENTIRE company network to be uncovered
    57. 57. Advanced Data Analytics uncover IP theft & information flow across barriers
    58. 58. Highly scalable & comprehensive
    59. 59. Easy to use, deploy & maintain
    60. 60. Low cost of ownership</li></ul>IM<br />Email<br />Telephony<br />Log files<br />How We Do It<br />
    61. 61. Benefits<br />Business Benefits: <br /><ul><li>Risk Reduction: Significantly reduce regulatory risk as EVERY email included
    62. 62. No increase in resource:
    63. 63. Same resource, same time – completely audit of information barriers, watch lists etc
    64. 64. Networks of interest AUTOMATICALLY created weekly, monthly
    65. 65. Investigate Suspicious Activity Reports instantly without IT support – Always-On solution
    66. 66. Non-disruptive to Business & IT
    67. 67. No integration
    68. 68. No emails collected
    69. 69. Deployed in days</li></ul>Return on Investment: <br /><ul><li>Reduce Regulatory Risk
    70. 70. Significantly Improve productivity
    71. 71. Cut collection costs by over 80%
    72. 72. Cut travel costs as preliminary investigations </li></ul> conducted centrally<br />
    73. 73. Live Demo<br />
    74. 74. Thank You<br />Eddie Cogan<br />617 407 2967<br />Eddie.cogan@catelas.com<br />www.catelas.com<br />Thank You & Stay Tuned for Future Webinars!<br />Alan Morley<br />(201) 923-7214<br />Alan.Morley@rbs.com<br />RBS Global Banking & Markets<br />Chris Ekonomidis<br />646 207 0788<br />cekonomidis@sapient.com<br />www.sapientglobalmarkets.com<br />

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