Unusual trading activity, criminal background, dodgy clients: Beware, this firm has eyes on you

When you try to open an account with a broker, say Zerodha or IIFL Securities, your name, number, and official ID, among many other details, get vetted by a vendor. This company screens your profile, checks whether you are an offender, and assigns a risk profile – all in 300 milliseconds.

Based out of Mumbai, this bootstrapped reg-tech (short for regulatory-tech) company is named TSS Consultancy Services. Brothers Sagar and Sameer Tanna, who once worked at their father’s sub-broking firm, started TSS in 2008. Today, their platform, Trackwizz, is used by brokerage firms that generate about 70 percent of the entire stock turnover on BSE and NSE.

"Preventing and detecting financial crimes are the biggest challenges for a country as large as ours. Since we were once on the other side of the screen, it was an easy transition for us into a capital markets reg-tech firm," said Sagar Tanna in an interview with Moneycontrol.

Here’s what happens

The Trackwizz platform, under its anti-money laundering (AML) solution, screens a person’s background against 182 different lists. Some of these lists include SEBI-barred entities, blacklisted chartered accountants and doctors, sanction lists, and even wildlife crime offenders. Once the all-clear is given to the broker by Trackwizz, the account is created.

Trackwizz also assigns a risk profile to the account holder – high, medium, or low. For instance, someone based out of Akola in Maharashtra will be assigned a ‘low’ risk rating if he/she declares farming as an occupation. But, someone in Mumbai with farming as an occupation is a ‘high’ risk client.

"The client is not aware of the risk profile. It is to help the broking firm understand who they need to call and run further checks on," said Tanna.

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Another feature of this AML solution is Transaction Monitoring. This comes after the account is created. The Tanna brothers and their team have identified 180 trading typologies, and Trackwizz sends an alert to the broker when it detects any unusual patterns.

Frequent trading in illiquid options and synchronised trading are some typologies, explained Tanna. Interestingly, if nine out of 10 trades of a client turn profitable, then too the system generates an alert. After all, SEBI’s study shows nine out of 10 F&O traders lose money.

"Based on inputs from the broking community, we add to these typology list every quarter," he said.

Where does all this data go?

Trackwizz’s job is to flag discrepancies to brokers, and then brokers need to send this data to SEBI, exchanges, depositories, and most importantly, the Financial Intelligence Unit (FIU).

FIU is a must-have for countries that are part of the Financial Action Task Force (FATF). It falls directly under the Ministry of Finance. Due to the COVID-19 pandemic and the pause in FATF's assessment process, the mutual evaluation of India was postponed to 2023. This year, FATF will be visiting India to conduct checks before India’s membership renewal.

This is where companies like Trackwizz take centre stage. But despite the need, Tanna says, there are only two or three reg-tech companies like his. "The scope for growth is huge."

Apart from brokers, Trackwizz is also used by fintech, banks, and NBFCs. The AML and Central Know Your Customer (CKYC) solutions make up over 80 percent of the company’s revenue.

With SEBI now tightening its grip on the industry and brokers being entrusted with added responsibilities, Tanna’s team of 400 employees will have their hands full and eyes wide open.