Credit Suisse is joining forces with Palantir Technologies, the artificial intelligence firm backed by the CIA’s venture capital arm, to use data-driven behavioural analysis to root out rogue traders and insider dealing.
Wall Street has been anxious to improve compliance and surveillance after a string of trading scandals that shocked the banking industry in recent years — from a $ 2bn loss UBS suffered at the hands of a rogue trader to a €4.9bn unauthorised trading loss at Société Générale.
The joint venture with the Swiss bank is the first for Palantir, the secretive Palo Alto-based group which counts In-Q-Tel, the CIA’s venture capital arm, among its earliest investors.
Credit Suisse and Palantir declined to discuss financial terms but said the new company, named Signac after the eponymous French neoimpressionist painter, was an even partnership of cash, employees and intellectual property.
Palantir, whose products are already used by many large banks, and Credit Suisse, which developed an intelligence unit of former foreign exchange traders, are betting their partnership will stand apart from the field by analysing the behaviour of individuals to understand the big picture.
The venture will track traders’ activities and try to identify aberrations both from their own norms and from those of their colleagues. Credit Suisse said the UBS and SocGen trading scandals shared factors, which they called “toxic combinations”, including trading in internal accounts and a large number of “cancel and correct” trades. The new product will analyse those outliers and marry the data on them with behaviour analysis, such as cell phone usage and door key-card swipes.
“We decided that we have to monitor the behaviour of individuals,” said Lara Warner, chief compliance and regulatory affairs officer at Credit Suisse. “When those ‘common toxic combinations’ come together at an individual level you get an early warning sign.”
Credit Suisse is using the product to track its nearly 1,000 traders and plans to roll it out to cover its 4,000 plus relationship managers around the world. The joint venture, the partners hope, will in time be used by other banks, large and small, to generate a better profile of risks across their systems.
Alex Karp, Palantir chief executive, praised Tidjane Thiam, Credit Suisse chief executive, for his commitment to managing risk at the bank. “We’re honoured to be partnering with him and Credit-Suisse,” he said.
Palantir is one of the highest valued private technology start-ups in Silicon Valley, after Uber and Airbnb, raising more funds last year at a valuation of $ 20bn. The start-up, where most of the founders came out of PayPal, is named after the seeing stone in Lord of the Rings, which helps to track hidden events across the world.
The company has resisted going public, with Mr Karp saying in 2013 he would not list Palantir because it would make running the often secretive company “very difficult’. A series of joint ventures could help the company expand even further without tapping the public markets.
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