The Financial Services Authority is to spend £4m on a new
IT system to help identify stock market abuse and
manipulation.
The City watchdog willreplace its current database, the
Surveillance and Automated Business Reporting Engine (Sabre), with
a more powerful database that analyses the financial markets and
automatically alerts regulators to trans-actions that may break
market rules.
The cost of the new system, which should be in place by 2006, will
be partly met by increasing fees for organisations regulated by the
FSA.
The FSA's current system can monitor both trades and individual
firms, but is not able to alert regulators when suspicious
transactions, such as trading ahead of price-sensitive
announcements, occur.
"Sabre is a simple database and we use a number of pre-determined
and flexible reports to extract information from the system," the
FSA said. "[Sabre] relies on the judgement of the analyst to know
what information is required and does not provide alerts to speed
up the review process."
Daniel Lessner, associate analyst in financial services technology
at Datamonitor, said, "Regulators are increasingly starting to use
more sophisticated technology for fraud detection," said . "This is
definitely one of the biggest tests yet for this kind of
technology."
The FSA investment mirrors that of financial services firms, which
are spending more in fraud detection software in response to more
stringent anti-money laundering regulations in Europe and the US.
Last month high street bank Abbey was fined £m by the FSA for
failing to meet regulations to tackle money laundering.
The system is likely to use neural networking technology to scan
the markets for suspicious transactions and workflow technology to
help regulators keep track of transactions that need to be
investigated, said Lessner
The FSA also plans to replace its modem-based service for receiving
transaction reports from companies with a direct electronic link,
probably using XML technology. Currently, firms send reports to the
FSA using a variety of electronic systems that have not been
designed to meet FSA data requirements.
Further details of the reporting system will be announced in March,
with development scheduled to take about 12 months.