US-based credit rating agency Fitch Ratings has reportedly made an investment in French artificial intelligence (AI) startup Sigma to improve bank misconduct detection.
The size of the investment has not been divulged.
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By GlobalDataFitch has adopted Sigma’s software to boost its evaluation process of the lenders’ risk beyond their traditional credit profile, The Financial Times (FT) reported.
Sigma’s AI tech examines over 30,000 news sources and 1,000 other databases, such as company registries.
It does this to create a list of 12 non-financial risk indicators and 18 risk events, signalling possible crime and governance risks known as “early trigger events”, the report added.
Moreover, its software tags shared company addresses with sanctioned entities or politically exposed corporate directors as red flags.
It tracks patterns like “high turnover in leadership roles” and “sudden exposure to new jurisdictions”, the FT report added.
This data is combined with an overall country risk assessment and a rating of ‘severe’, ‘standard’, ‘low’, or ‘nothing found’ is assigned.
Sigma co-founder Stuart Jones said that the agency’s data set currently includes 750 million corporate entities and related people.
Jones said: “The rating game has not changed a lot since John Moody started on railroad bonds 100 years ago.
“Financial crime risk is an increasingly important part of any credit rating, as has been shown again and again in recent years.
“What we aim to do is to be able to point someone to where there is risk in a matter of seconds when looking at tens of thousands of entities.”
Fitch’s investment in Sigma comes after a series of high-profile banking scandals around the world in recent years, which were undetected by regulators, auditors, and investors.
This includes the fraud-hit German payments company Wirecard, fake accounts scandal at Wells Fargo and a Russian money-laundering scandal at Danske Bank.
Last year, Fitch had invested $6m in Sigma Ratings. With the latest investment, Fitch now owns a minority stake in Sigma, according to FT.
Fitch Ratings president Ian Linnell said: “What Sigma is doing is pretty unique, we have not seen it from another start-up.
“The way they deliver information through machine-driven analysis means it is more structured and efficient, rather than us having to go left, right and centre to pick up on signals.”
Fitch global head of financial institutions Marjan Weijden said: “Regulators and investors are holding banks more and more accountable and Wirecard was a real wake-up call.
“The extra information provided by Sigma’s dashboard is giving our analysts a tool to ask the right questions to executives and to pick up worrying trends earlier.”
