Know Your Clients' behaviours: a cluster analysis of financial transactions

• URL: http://arxiv.org/abs/2005.03625v2
• Date: Thu, 14 May 2020 14:29:13 GMT
• Title: Know Your Clients' behaviours: a cluster analysis of financial transactions
• Authors: John R.J. Thompson, Longlong Feng, R. Mark Reesor, Chuck Grace
• Abstract summary: In Canada, financial advisors and dealers are required by provincial securities commissions and self-regulatory organizations to maintain Know Your Client (KYC) information for investor accounts. We use a modified behavioural finance recency, frequency, monetary model for engineering features that quantify investor behaviours, and machine learning clustering algorithms to find groups of investors that behave similarly.
• Score: 0.0
• License: http://arxiv.org/licenses/nonexclusive-distrib/1.0/
• Abstract: In Canada, financial advisors and dealers are required by provincial securities commissions and self-regulatory organizations--charged with direct regulation over investment dealers and mutual fund dealers--to respectively collect and maintain Know Your Client (KYC) information, such as their age or risk tolerance, for investor accounts. With this information, investors, under their advisor's guidance, make decisions on their investments which are presumed to be beneficial to their investment goals. Our unique dataset is provided by a financial investment dealer with over 50,000 accounts for over 23,000 clients. We use a modified behavioural finance recency, frequency, monetary model for engineering features that quantify investor behaviours, and machine learning clustering algorithms to find groups of investors that behave similarly. We show that the KYC information collected does not explain client behaviours, whereas trade and transaction frequency and volume are most informative. We believe the results shown herein encourage financial regulators and advisors to use more advanced metrics to better understand and predict investor behaviours.

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