Sedric monitors financial institution employee communications to ensure compliance

For financial institutions, compliance is becoming an increasingly costly endeavor. According to a recent survey, 76% of financial services firms increased their compliance spending in 2022-23, with most blaming new regulations.

With compliance costs now running at around $10,000 per employee, many companies are looking for ways to cut costs without running afoul of regulators. Entrepreneurs Nir Laznik and Eyal Peleg say they have a solution—based on generative AI, in keeping with the trend.

Laznik and Peleg co-founded Sedric, an AI-powered platform that helps financial institutions implement compliance policies and flag potential issues. Before Sedric, Laznik led several startups, including a photo kiosk software company, while Peleg spent nearly eight years in Intel’s AI and machine learning organization.

“We understood that there was a disproportionate pressure on midsize organizations, coupled with a new set of challenges for banks,” Laznik said. “We knew that the rapid advances in AI could solve these problems in a completely new way. This convergence of factors led us to create Sedric.”

Sedric’s AI acts as a kind of overseer, monitoring employee calls, chats, emails, social media DMs, and instant messages. It tries to flag compliance issues (such as missed disclosures, skipped steps, and misconduct) as they occur; Sedric can automatically “mitigate” issues and provide coaching to employees who have committed misconduct, in many cases, Laznik says.

“This technology gives compliance officers a holistic view of customer touchpoints across multiple channels, enabling them to quickly and effectively flag deviations from established compliance policies and guidelines,” Laznik said. “Our platform spans the entire compliance lifecycle, from policy setting to enforcement, remediation and audit.”

Such deep surveillance can seem a bit intrusive—not least because Sedric “scores” interactions on a per-employer basis based on company policy compliance. But for better or worse, U.S. state and federal guidelines give broad authority to companies that monitor their employees, as long as they’re reasonably transparent about it.

What’s more, some federal regulations—specifically those related to insider trading, collusion, and the sharing of certain earnings records—require financial institutions to closely monitor employees as they interact with customers and the broader marketplace. They preempt state laws, such as those in New York and Connecticut, that impose additional requirements on employers monitoring their workforces.

I asked Laznik about the potential for bias in Sedric’s AI, given that the AI ​​will likely monitor communications from employees of all backgrounds. Biased AI can lead to discrimination, depending on where and how it’s deployed—whether intentionally or not.

Studies have shown that some AIs trained to detect toxicity perceive phrases in African American colloquialism, an informal grammar used by some black Americans, as disproportionately “toxic.” Other studies have shown that speech recognition systems are more likely to mistranslate the audio of black users than their white counterparts.

Laznik says Sedric uses “finely tuned models” trained on “proprietary datasets that are curated and validated in collaboration with industry experts” to try to minimize bias. The company also monitors performance drops in deployed models and retrains models as needed.

“Our platform enables customers to provide direct feedback through a variety of annotation inputs, which are then validated by compliance teams and used for retraining or integrated into the prediction process,” he added. “This allows our models to become increasingly tailored to each customer.”

To protect the privacy and security of customers — and employees — Sedric lets businesses configure where their data is stored and implement controls that block (or at least attempt to block) personally identifiable information.

“At Sedric, we designed our platform with compliance and security in mind,” Lazink said. “Organizations can set their own retention policies and compliance guidelines in line with internal guidelines and specific regulations.”

Sedric, which also offers tools to help call center agents talk to customers over the phone, has “hundreds” of paid compliance officers and corporate clients in the U.S. and Europe, Laznik said.

Revenue has increased fivefold over the past year — although Laznik declined to provide more specific numbers.

“For small and midsize businesses, we offer turnkey solutions, and for enterprises and banks, we offer a hybrid model with customized adjustments,” Lazink said. “Our focus on the specific needs of financial institutions, combined with our proprietary library of pre-trained, regulatory-inspired models that can also be customized to meet each organization’s unique requirements, sets us apart in the marketplace.”

The pursuit of financial customers and specific use cases has certainly worked in Sedric’s favor, setting the company apart from workplace monitoring rivals like Fairwords, Shield, Erudit, and Aware. It’s a crowded—and often controversial—market, but investors still sense some opportunity, especially as artificial intelligence becomes more deeply embedded in such tools.

Case in point: Foundation Capital, apparently pleased with Sedric’s progress so far, led an $18.5 million Series A investment in the four-year-old company, which also included Amex Ventures. The new money will go toward “significantly” expanding the company’s go-to-market and R&D teams in New York and Tel Aviv, Lazink said, bringing the total raised by New York-based Sedric to $22 million.

Sedric plans to double its headcount over the next 12 months.