AI in Finance: Regulatory Compliance, Risk Management, and Auditing

Natalino Busa - Head of Data Science

https://en.wikipedia.org/wiki/File:DTI-sagittal-fibers.jpg

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Head of Applied Data Science at Teradata

On most networks:

@natbusa

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What’s in the next hour?

Machine learning and cognitive computing for :

• Regulatory Compliance• Process and Financial Audit• Operational Risk Management• Data Management

Discussion

• Q&A• Ideas, use cases

Recommendations

• Data computing systems• Tools, and Skills

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A brief history of Regulatory Compliance

5http://www.bibler.org/images/overlay/reni-moses_with_the_tables_of_the_law.jpg

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It does not scale well ...

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Moving towards digital

Design QueriesVerify?

Comply?

Run Queries

Check Reporting

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Meet the band at the bank

Business developer

Data Scientist

Database Admin

Devops

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Approach #1: avoid risk

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Approach #2: Accept Risk

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Approach #3: Data-Driven Regulatory Compliance

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Data-driven Compliance

❏ Distributed systems: time❏ Complete, Correct, Coherent Information❏ Human and Machine Errors❏ Incorrect Interpretation of Regulations❏ Attacks, Frauds, Exploits

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Auditing + Compliance + ORM

Counting ThingsKnown Knowns

Talking about the:Expressive Power of SQL

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AI and Machine Learning to the rescue

NLP - Process Mining Anomaly Detection - Knowledge Graph

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What is NLP? Transforming free text into structured data and back

Computer Science + Linguistic

Based on Algorithms,

Machine Learning and Statistics

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What problems does NLP solve?

Question Answering

Machine Translation

Text Summarization

Topic Extraction

Semantic Search

Spelling correction

Sentiment Analysis

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LDA: extract topics from documents

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Semantic Search

The ... sleeps on the mat

w(t-1) w(t+1) w(t+2) w(t+3) w(t+4)

embedding

w(t)

dog, cat

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Semantic Search Word2Vec, Par2Vec, Doc2Vechttps://arxiv.org/pdf/1405.4053v2.pdfhttps://arxiv.org/pdf/1301.3781v3.pdf

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NLP to SQLTransform Natural Language Question to Database SQL queries

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Google: open source NLP parserscoring 95% in grammar accuracy

https://github.com/tensorflow/models/tree/master/syntaxnet

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Deep Learning in Language Parsing

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Operational Risk Management

- Benefits -

1. Reduction of operational loss.2. Lower compliance/auditing costs.3. Early detection of unlawful activities.4. Reduced exposure to future risks.

EstablishContext

Risk assessmentIdentification

Analysis - Evaluation

Risk Treatment

Monitor & Review

ORM

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Unknown unknowns in ORM

Looking for something we don’t know we should be looking for

• Unexpected Services Failing• Suspicious Access schemes• Fraudulent Transactions

Looking for Patterns,Looking for Anomalies

IT Risk

Model Risk

Legal Risk

CyberSecurity

Fraud Risk

Conduct Risk

Money Laundry

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Network Traffic Patterns Classification

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Network Intrusion detection

http://billsdata.net/?p=105

It contains 130 million flow records involving 12,027 distinct computers over 36 days (not the full 58 days claimed for the entire data release).

Each record consists of: time (to nearest second), duration, source and destination computer ids, source and destination ports, protocol, number of packets and number of bytes

Techniques: TDA, Dimensionality Reductionhttps://en.wikipedia.org/wiki/Nonlinear_dimensionality_reduction

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AI + Human Intelligence- It’s a closed loop -

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AI Tools

http://www.shivonzilis.com/machineintelligencehttps://www.oreilly.com/ideas/the-current-state-of-machine-intelligence-3-0

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AI based solutions: Enterprises

http://www.shivonzilis.com/machineintelligencehttps://www.oreilly.com/ideas/the-current-state-of-machine-intelligence-3-0

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AI based solutions: Industries

http://www.shivonzilis.com/machineintelligencehttps://www.oreilly.com/ideas/the-current-state-of-machine-intelligence-3-0

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AI based solutions

AI Tools: Exist but may be too narrow in scopeData + Libraries + Scientists: Still the way to go for customization

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Thank you.natbusa

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bonus slides

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Hype it right. Understand the limitations of current systems

Google’s Self-Driving Car Program Odometer Reaches 2 Million Miles

http://www.wsj.com/articles/googles-self-driving-car-program-odometer-reaches-2-million-miles-1475683321

Deep learning as a tool for increased accuracy and efficiency of histopathological diagnosis

http://www.nature.com/articles/srep26286

Why is AI so difficult?

http://waitbutwhy.com/2015/01/artificial-intelligence-revolution-1.htmlhttp://www.forbes.com/sites/gilpress/2016/10/31/12-observations-about-artificial-intelligence-from-the-oreilly-ai-conference/http://www.tor.com/2011/06/21/norvig-vs-chomsky-and-the-fight-for-the-future-of-ai/https://www.safaribooksonline.com/library/view/oreilly-ai-conference/9781491973912/video260721.html

Down the rabbit hole.

https://youtu.be/_1Cyyt-4-n8https://youtu.be/u6aEYuemt0Mhttps://youtu.be/bEUX_56Lojc