JP Morgan to roll out software to identify potential 'Nick Leesons' - before they strike

Software developed for counter-terrorism rolled out in investment banks to stamp out fraud before it happens

US banking giant JP Morgan is introducing new software that will analyse the activities of its traders - and sound the alarm should it spot patterns indicative of any would-be Nick Leeson-style rogues.

The software will automatically analyse their trading activity, such as violation of trading rules or breaches of market-risk limits, as well as other inputs, including attendance at compliance classes. The aim is to identify potentially rogue employees before they go astray or, at least, before they can do too much financial damage.

"It's very difficult for a business head to take what could be hundreds of data points and start to draw any themes about a particular desk or trader," Sally Dewar, head of regulatory affairs in Europe for JP Morgan, told Bloomberg. "The idea is to refine those data points to help predict patterns of behaviour."

The software is currently being tested in the organisation's trading business - where most damage can potentially be done - before being rolled out to the bank's global investment banking and asset management divisions next year.

JP Morgan currently has some 2,500 compliance officers, and the bank is also building a surveillance unit to monitor electronic and phone communications throughout its investment arm, according to Bloomberg. That, however, won't capture communications conducted on personal devices, such as smartphones.

According to Tim Estes, CEO of Digital Reasoning Systems, the software being implemented in JP Morgan and other banks, including Goldman Sachs and Credit Suisse, was originally developed for counter-terrorism work.

"We're taking technology that was built for counter-terrorism and using it against human language, because that's where intentions are shown," said Estes. "If you want to be proactive, you have to get people before they act."