‘A needle in 50 haystacks’: Securities regulators face data overload

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Emerging technologies have given securities commissions new tools to help them detect white-collar crime, but regulators say they have also created additional hurdles for them as they try to keep abreast of change.

Jeff Kehoe, director of enforcement at the Ontario Securities Commission, says the "mind-numbing" volumes of data collected during an investigation now have in some ways made catching criminals harder.

"For some of our investigations, it's been described as finding a needle in a haystack," Mr. Kehoe said on Thursday during a conference hosted by the OSC in Toronto. "But that's no longer our reality. It's like finding a needle in 50 haystacks – or 100 haystacks. So we need tools that not only reduce the size of the haystacks but also make the needles bigger."

Technological advancements have also created new opportunities for fraudsters, who tend to be early adopters of new technologies, Mr. Kehoe said, adding that if a regulator doesn't adapt its tools and techniques to address these emerging risks, it may fail to fulfill its mandate of protecting investors and maintaining confidence in the capital markets.

"You can't use wiretaps in an age of [BlackBerry Messenger] and hope to catch the bad guys," he said.

Despite the challenges, there are many ways in which technology has aided regulators and allowed them to do their jobs more efficiently.

Matt Cardillo, senior director of market-regulation technology at the Financial Industry Regulatory Authority, pointed to his organization's data-surveillance program, which has trip wires that alert analysts to potential criminal activity.

And Singapore's securities regulator has developed a tool that allows it to detect collusive price manipulation and a fraudulent trading scheme called circular trading, which involves brokers opening a position that matches existing orders from clients, artificially boosting a stock's trading volume.

"It's a real game changer if you think about it, because what used to take our investigators months to do can now be done in a matter of hours," said Gillian Tan, executive director of the enforcement department at the Monetary Authority of Singapore.

But regulators still have much work to do to adapt to the changes under way. They will not only have to convince courts and tribunals that the data they collect and analyze is accurate, they will also have to be careful not to rely too heavily on the new tools. After all, data can have limitations and algorithms can be prone to many of the same biases as the humans who programmed them, Mr. Kehoe said.

Perhaps most importantly, regulators will need to change their organizational culture to be more innovative and nimble, Ms. Tan said. But changing a large, established institution can be "a bit like trying to turn an aircraft carrier around," she added.

"On the one hand we want to be like Wealthsimple or Google and wear jeans and no ties and be quick and nimble," she said. "But at the same time we're from organizations that have been around for some time and have a certain ethos and a certain way of doing things."