Matt Smith, winner of the European Markets Choice Awards’ CEO of the year spoke to Best Execution
What has SteelEye been up to over the past year?
Last year we held our Series B fundraise in what, I think, anyone would agree were incredibly difficult market conditions, both from a commercial landscape perspective as well as from an investment perspective. But we are very pleased to bring on board a private equity growth fund from New York as partners in what was a $21 million raise. And that set us up for going into 2023 well positioned for growth.
The last year has really been about scaling our business. We’ve focused on bringing on more, and larger, institutional clients. And growth has been incredibly strong for us. Obviously, larger clients mean more complexity when it comes to integration and support, as well as aspirations from a product perspective.
We’ve also been very focused on international growth. Today we have offices in India, Portugal, the UK and, last year, we opened a commercial office in New York. We’re very focused on building out that global franchise.
We’ve also been looking at ways to modernise the compliance office through the utilisation of artificial intelligence (AI). This was accelerated with the launch of OpenAI’s ChatGPT last year. We look at it in a slightly different way compared to other surveillance providers, utilising these large language models or generative models to make compliance more straightforward. In short, using it as an assistant to a compliance professional to help them break down very large, complex data sets incredibly fast.
There’s been a boom in regtech, compliance, surveillance. And for good reason – financial crime and fraud is huge. How do the tools that you now have, such as AI, really augment the abilities of your team?
We can use generative language models to summarise communications, to give context and look at elements in more detail. It can tell us if there is something that as a compliance professional we should be concerned about. It might be the sharing of sensitive information or the sentiment of the communication. So, it’s really making a compliance officer much more efficient in terms of working through datasets.
Is AI to be feared or is it actually making existing workflows more efficient?
People ask, is AI going to replace human beings? Well, recently, ChatGPT passed the bar exam in the US. But does that mean it could sit in a courtroom of jurors and litigate? I would like to think not. When you really think about it, an accountant with ChatGPT will be a more efficient accountant than one without.
And if I look at it from a compliance professional’s perspective, they will be more proficient and efficient with that type of technology than without. But will it replace the compliance professional, ultimately? No, absolutely not. But you may need fewer of them. The fact is, compliance is a major expenditure for financial firms, both from a technology and human capital perspective, and using technology like this can make organisations more efficient and more effective.
Apparently, half of all jobs that exist today did not exist in 1940. Are there technologies, over the medium-term, that you think will create new roles within compliance, or make existing roles easier or more efficient?
This is what we set out to do when we started SteelEye. I have been in this industry for some time and for years the industry, the solutions providers, would talk about the concept of holistic or integrated surveillance, which means being able to survey communications and trades as ‘one thing’. Nobody had done it. We know, right now, we are the only ones that are doing it properly and we also know that we were the first.
Let’s take insider trading. Today, to capture insider trading as a market manipulation scenario, most firms have a view of the communication aspect and they will look for communication patterns that might lead to people sharing information. Perhaps an unusual trade with a significant market movement and then they will consider news information coming out about that transaction or security. If you look at what you actually need to capture, it’s a lot. You need to know what was traded, you need the orders and trades, all very complex in itself. You also need to always be on the market. You need to know what people are saying, for example on WhatsApp. We saw $2 billion in fines last year for WhatsApp capture failures alone. You need Bloomberg chats and emails and really any other communication mechanism. Finally, you need the news. That’s a huge amount of information. And there’s a lot of reference data as well on top of all that.
Nominally we are a firm that sells regtech products, but we are really a data company. We have all the aforementioned data in a centralised location. Today, most firms operate in a fragmented world. They will have a trade surveillance solution, internal and external. They will have communication surveillance tools. One firm that we worked with before Covid had seven systems doing what they are now doing in one system. During Covid, their volumes doubled and it was unsustainable for them to operate that way.
Where I see the market going is towards holistic integrated surveillance. We are at the forefront of that. Now that the market realises it is possible, this is going to be the big shift and it is going to make compliance professionals’ lives easier and more efficient. They are going to be able to save a lot of money on consolidation of vendors and the disposal of hardware required to operate in a siloed world. This consolidation aligned with the utilisation of generative analytical capabilities is going to represent a substantial shift in the way compliance operates.
What trends are you seeing in surveillance right now? And how are they being affected by the current economic and market circumstances?
There was a big shift following Covid with remote working and people using more modern communication technologies, and we’re seeing a big focus on more effective communications, record keeping and surveillance. There’s a big focus on WhatsApp. As previously mentioned, with the fines from the SEC, I think that trend is going to continue. Those fines were an example of the regulators in the US making it very clear to the market that they expect financial firms to do as much as possible to be compliant and conform, and monitor modern communications. I think you will see a little bit more of that across Europe and other regulatory regions.
We spend a lot of time with regulators around the world. And what they are seeing is, as technology evolves, their expectations of market participants starting to shift in line with technical capabilities. For example, even WhatsApp capture four or five years ago wasn’t really there, you could not do it properly. Now they expect you to do it. It’s going to be the same on the trade surveillance side of things, making sure that financial firms are actually doing as much as possible to effectively prevent market manipulation and financial crime. And again, the trend is that the world is moving to integrated surveillance.
What are SteelEye’s plans for the next 18 months?
We’ll be very much focusing on continued growth – we are in a stage of rapid scaling. We are looking at how we establish our commercial footprint internationally. We are constantly evolving our product bases. We are continuously looking at how we can better serve the market and our clients.
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