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Israeli startup monitors and detects insider trading, financial fraud

Shield uses artificial intelligence to help large banks and financial institutions comply with fast-changing regulations

The Shield investigation dashboard gives financial institutions an instant overview of suspicious communications by employees and customers (Shield)
The Shield investigation dashboard gives financial institutions an instant overview of suspicious communications by employees and customers (Shield)

In late 2020, American financial regulators fined Citigroup $4.5 million for erasing nearly three million audio files of conversations between traders. Several weeks later, Santander Investment Securities faced a penalty of $150,000 for similar offenses, including the failure to save the emails of more than a hundred employees for five years.

In the wake of serious fraud, exchange rate manipulation, and other scandals at banks and other financial institutions, regulators have increased requirements to monitor and archive digital communications. Firms now need to be able to read and recall online conversations across all media among employees, and between staff and customers, as part of increased efforts to detect and prevent fraud and other crimes.

An average European bank generates more than 200,000 emails and 100,000 chat messages each day, with traders and other professionals talking on numerous platforms.

That makes complying with the growing forest of regulations a mammoth task, says Shiran Weitzman, CEO and co-founder of Shield, an Israel-based startup with a platform that helps financial companies adhere to the stringent rules related to communications and enables them to detect fraud and other nefarious behavior.

The regulatory demands have sharply increased the cost of doing business.

“It has forced banks to restructure their operating budgets,” Weitzman says. “20% of operational costs for banks are dedicated to compliance today.”

Shield offers an answer, helping the firms to meet their regulatory obligations while cutting the mounting costs.

The company, founded in 2018, has won multiple industry awards and, unusually for a startup that already has major customers and a growing revenue stream, is only now turning to investors, including Jerusalem-based OurCrowd, to raise a Series A funding round.

One leading bank headquartered in the UK with offices around the world called in Shield after realizing that its communications networks were rapidly expanding and its decades-old systems meant that its compliance procedures and technology were no longer effective. Any new system would have to monitor all communications, create the documentation required for compliance investigations, and allow simple updates when necessary to meet ever-changing regulations and new data sources.

“We felt particularly vulnerable and had an urgent need for a solution that could process massive amounts of data, scale with our expanding operations, meet all our needs with respect to security and compliance and, of course be installed on cloud infrastructure,” says the client, who asked not to be identified. “Shield’s off-the-shelf solution integrated readily with our own technology stack and its user-friendly interface and extensive functionality allowed us to roll it out enterprise-wide very quickly. The result was an end-to-end cloud-enabled solution that was more secure, more efficient, and more collaborative than we imagined possible.”

Shield uses natural language processing, artificial intelligence and other data analysis to flag suspicious communications on multiple platforms, while also detecting patterns and archiving relevant information. Shield’s customers include several major banks, and the company has recently signed new partnerships, including a deal with mobile archiver TeleMessage to capture and store WhatsApp and other mobile messages.

“We help financial firms manage and mitigate the risks in human conversations and interactions,” Weitzman says. “We really solve the problem end to end.”

Shield is part of the rapidly growing field of regulatory technology, or regtech for short, which is expanding and using new methods to help firms comply with government regulatory requirements meant to reduce fraud and financial crime. The rules are constantly changing, and the costs of compliance are growing, according to Deloitte.

“RegTech is more than a buzzword,” Deloitte reported. “RegTech promises to disrupt the regulatory landscape by providing technologically advanced solutions to the ever-increasing demands of compliance within the financial industry.”

The global market for regtech is growing more than 21% a year, and is expected to reach more than $33 billion by 2026, according to a report from market research firm Facts and Factors.

Complying with requirements to monitor or track electronic communications raised even more challenges in a year when millions were working remotely because of COVID-19.

“The pandemic has created even more communication channels, with people working from home,” Weitzman says. “Employees are talking on Microsoft Teams, WhatsApp, Zoom and everything else. This means firms have an inability to control and review risk in the ways they used to. Compliance officers can no longer stroll the trading floor.”

“There was exponential growth this year, probably several years’ worth. It was happening before COVID, but COVID just expedited it,” Weitzman says. “We see a huge demand for our services now because of this.”

Shield’s technology monitors and archives communications on multiple platforms, allowing employees to conveniently use tools like WhatsApp, text messages and Zoom. The system works partly by using algorithms to identify suspicious or irregular comments, then notifies compliance teams to check them out further.

Weitzman says the system’s reliance on natural language processing – in which computers recognize and interpret human speech – and artificial intelligence, results in only flagging the truly suspicious comments, with few false alarms.

“It’s very hard to find the needles in the haystack,” he says. “But our system does this well, avoiding too much noise.”

Private conversations

The platform distinguishes between private and business communications. Compliance teams do not have access to employees’ private conversations with family members or friends.

“The separation between the business and the private is important, and it should always be there,” Weitzman says.

Partnerships, including with TeleMessage, give Shield’s technology extra reach and convenience, allowing employees to continue using their personal devices and apps.

“Shield allows us to enhance our mobile recording products with advanced analytics and surveillance, bringing modern mobile communication to the regulated financial markets,” says Guy Levit, CEO of TeleMessage.

Shield also recently joined IBM Cloud for Financial Services, a collection of independent software vendors supplying services to the financial industry.

“Shield’s participation in our ecosystem can help to accelerate the digital transformation of financial services customers by providing solutions designed to address their unique compliance, security and resiliency needs,” says Evaristus Mainsah, general manager of Cloud, Cloud Pak and Edge Ecosystem at IBM.

In addition, Shield works with trading surveillance and software giant FIS to provide more comprehensive monitoring of both trading actions and communications.

Regulation of communications in the financial world is not new; it has just gotten more complicated as communication channels have increased. For example, for decades banks have monitored landline phone calls and in-person and paper communications, and have banned cellphones from trading floors. But since the Dodd-Frank Wall Street Reform and Consumer Protection Act, following the global financial crisis of 2007-2008, regulatory requirements began to cover digital communications as well.

“But back then, there was basically only email, mobile phone calls and SMS messages to monitor,” says Weitzman. “The communications methods and regulatory requirements are increasing all the time.”

For more information about investing in Shield, click HERE.

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