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https://fintechcircle.com/insights/ai-technology-regtech/

Originally published at Global Banking & Finance Review

It’s a perfect storm. The financial services industry faces a deluge of regulatory changes that cause it to constantly evolve and re-evaluate. While at the same time, the operational and technological infrastructure of many firms is not conducive to embedding these new requirements nor working in a rapidly evolving regulatory environment. In fact, these organisations are plagued by aging Legacy systems and technology that is brittle and creaking under the strain of years of bolted-on enhancements and additions.

RegTech is emerging as a new technological solution for regulatory problems and will help organisations with the above challenges. As Patrick Armstrong, risk officer at the European Securities and Markets Authority recently said,“Embrace RegTechor drown in regulation!” Recent regulatory change and geo-political uncertainty have seen a surge of interest and move towards RegTech solutions, automation, and digitisation of onerous tactical and manual processes. Taking advantage of this proposition will bring companies into a new era where compliance accompanies innovation.

Most firms in the industry will be familiar with the constant feeling of being on a treadmill. A lot of resource is required from a regulatory standpoint just to stay still. Take a look at the biggest regulatory Juggernautson the horizon as an example – GDPR and MiFID II. They will cost companies and industry billions of pounds to meet the requirements placed upon them by the ruling body, and every time a company deals with one of these pieces of legislation, another change isn’t far behind it.

As a result, 89% of financial services executives globally expect continued cost increases in their compliance departments over the next few years, according to Accenture. They cite fraud and financial crime risk, business risk, and cyber risk as the three biggest compliance risks that will contribute to that rising cost. However, it must not go unsaid, that as FinTech innovates and becomes more sophisticated, more checks and balances will need to be put in place to ensure the Financial Services industry and consumers are protected, and that market abuse regulations are not breached. With a finite pool of compliance specialists available, there are lot of considerations that could trouble businesses.

A different lens

But maybe we’re looking at this wrong. They say the best form of defence is attack. While we go through this vital period of change throughout our industry, what if we didn’t see this as yet another box-ticking exercise? What if we saw it as an opportunity to find new ways to be smarter with our data and provide services that position us for future growth? RegTech suddenly becomes a resource that works in the favour of businesses to enable them to become more efficient and innovative, not just compliant.

So, what exactly is RegTech? RegTech or Regulatory Technology describes the evolving intersection of financial services regulation and technology. It’s a technological solution for a regulatory problem. It’s the use of new data integration, ingestion and analytics technologies to more effectively and efficiently address investigations, fraud, regulatory and compliance requirements. And with the rapid growth in predictive analytics, AI and machine learning, the tools will only become more powerful in the future.

Working alongside FinTech, which has already disrupted the financial services market with a raft of new data-driven solutions, RegTech identifies and solves for specific regulatory issues. It provides technologies that facilitates the delivery of regulatory requirements more efficiently and effectively than existing capabilities. In doing this, it provides process automation, reduces the cost of remaining compliant, and streamlines operations to become less reliant on resources that could be better used elsewhere.

New approach

For the compliance officer, the head of regulatory affairs, or anyone handling the day-to-day risk, operations, compliance and audit (ROCA) concerns of the lines of business, RegTech presents a new way to work. For example, a Hitachi tier-one global banking client recently looked to create a solution that would collect every piece of relevant data in a single place. By creating a central, comprehensive data set, as a result the bank was able to complete compliance investigations without the need to return to source systems, even if the scope changed.

The bank engaged Hitachi Data Systems to build a cutting-edge ingest-and-search platform based on Hitachi Content Platform (HCP) technology. The HCP solution cut the time needed for discovery searches from weeks to hours.

Opportunities

RegTech helps companies to innovate in two ways. Firstly, as with example above, the technology itself provides ways to innovate processes it has painstakingly carried out manually for years. Now, disparate and disjointed data sets can be viewed from a single pane of glass. This, in turn, provides routes through which compliance can be done differently and provide reliable and accurate results.

Secondly, with much of the tactical legwork taken care of through automation and smarter systems, businesses can free up resources to innovate in other areas. They can focus onnot just the keeping up with the competition in this challenging industry, but on new ways to solve problems, service customers and ultimately, increase revenue.

RegTech isn’t just one solution, so it’s important for businesses looking to seize the opportunities it presents to identify the areas where it could add most value. It’s a process that will need the strength of not just compliance and IT departments, but all key line of business stakeholders to work together and find relevant synergies. But wider than that, it will open the door for conversations with senior leadership concerned about the heavy non-compliance penalties. And also, those within the business looking at rolling out new services will be empowered by the robust compliance infrastructure underpinning them.

Those operating within the ROCA space know the importance of regulation in its role of creating financial stability and protecting the market’s reputation in the eyes of customers. But in some parts of the business, it’s merely seen as a necessary evil. But there are ways for ROCA to distinguish itself as more innovative and dynamic in the face of tough challenges surrounding it. Having the tools that enable it to take this step will be crucial for future stability and profitability.

October 2019 to Present

Ascent is a regulatory knowledge platform that streamlines the most tedious and error-prone parts of compliance. By merging AI-driven technology with human expertise, Ascent’s groundbreaking solutions help financial firms effectively manage regulatory change and reduce their risk — at a fraction of the time and cost.

Ascent Forms Industry Advisory Council (IAC)

Let’s face it, if you’re a financial services institution, your main business objectives are to generate revenue, grow your business, and be competitive in the market landscape. However, it would appear that most firms are getting caught up in the ever-increasing cost and resource burdens associated with the dramatic increase in regulatory obligations. 

With the advent of the fourth industrial revolution and the digital age, where technology is heavily influencing how we live and operate in our day to day lives, we will see a rise in new regulatory requirements that will inevitably come our way. Because of this, the financial services industry will see a significant change in how it operates today. The fundamental influence and driver behind this change is data.

In this digital age, oil and gas are getting old, and gold is looking rather brassy, too! Data is omniscient and the most precious commodity you can have. Everything in our day to day lives revolves around data: Collecting it, shaping it, cooking its, dicing it, slicing it, analysing it, monetizing it! It’s all about data, data, data! 

Big Data is changing the world as we know it, and taking us away from our cozy little comfort zones of what we know, into an era of change, transformation, and in some cases, uncertainty. And dare I be totally cliché and steal the adage from a popular SyFy show and say that data is taking us “boldly [to] where no man has gone before,” and, let me tell you, these changes are remarkable, awe inspiring, and critical! The term “big data” -which by the way I loath! Oh mighty naming convention gods, can we not come up with a better word please!?!-in any case I digress, Big Data (yuck! I’m just going to call it BD for the sake of this blog and my sanity!) is very broad, so let’s break it down for the financial services industry before I go any further. BD is Financial Services is both unstructured and structured information, whether it’s sourced through in-house or third-party channels, for example, emails, scanned forms, messaging (text, voice, video and photo). The data can come from customer transactions, open data, and call centers, just to name a few.The data can be a huge advantage for firms because it provides insights on operations, culture, conduct, and client interaction.

So, why don’t you, dear reader, humor me, and allow me to take you on a brief journey to show you how I see “BD” impacting society and the changes looming on the horizon. And if you stick with me until the end, I will also look at how financial services institutions can leverage their data to comply with complex global regulations in this new digital age!

In the immortal words of Zager and Evans …. “In the year 2525, if man is still alive, if woman can survive, [you] may find….”

Improved Healthcare

Access to scientific data has revolutionized how the medical profession treat diseases and enables them to pioneer and develop new treatments and medications to better help patients. However, the ever expanding data verse, and the flow of new more complex data, makes it nigh on impossible for doctors, scientists, and large medical organizations to sift through, ingest, analyse, or even understand, what this data means. So, what’s the solution? We are seeing the emergence of powerful, smart machine learning and other artificial intelligence tools, which use sophisticated technology that enables them to hunt, track and look for the proverbial needle in a hay stack that would usually be lost in the in the hubbub of using more traditional statistical tools. Large data bases with digital imaging tools, for example, can serve as invaluable tools for diagnosing a growing number of conditions. Platforms run by BD won’t replace the medical profession imminently, however, you will see more medics empowered by more sophisticated technology to better service their patients’ needs. 

New Jobs

I constantly get asked with the advancement of these new technologies powered by BD, “What will happen to our jobs?” Look! Let’s not get carried away here, until we reach the “singularity.” I think I am quite safe in saying that we are still some way off from the day where we will be answering to “Skynet” and “Terminators.” Until that days heralds forth, truth is that the need for that true intellectual human capital will never go away! You will always need humans to monitor, supervise, and understand what that technology is doing. Although, in saying this, how we do our day to day jobs will change dramatically. We will see the emergence of new jobs being created for those with expertise in BD and its associated technologies. Look at the insatiable thirst we are seeing on the market right now for data scientists, in particular. This trend is only set to grow and quicken in pace, and new roles and jobs will also follow suit. “BD requires software developers to implement algorithms developed by data scientists and mathematicians; IT experts are also needed to ensure the increasingly complex computer systems used to run programs are reliable. More high-paying jobs will be available to those who qualify, and students and employees are beginning to change their focus.”

City Management

How about running a city? It can become an insurmountable nightmare. Things such as complex traffics routes, congestion, public transport inefficiencies, and even something as simple as trying to get an elevator, can be a nightmare with long wait times. I remember working in one office in Canary Wharf on the 34thfloor. I had to give myself 10-15 minutes extra time just to get to meetings!

However, with data comes the ability solve these challenges. For example, my dream of wanting an elevator to detect my needs, wait for me, and safely speed me up straight to the right floor were actually not some romanticised fantasy, but an actuality that has already been realised by Hitachi. How about another example? Ok, so what about those ghastly public transport delays?!

There is always a risk of delays bringing virtually everything to a standstill because of the lengths and complexity of rail routes, and believe me I am no stranger to being stuck in a crowded tube for many hours with my personal space totally violated and my head stuck up some lovely strangers armpit for the duration of the wait. Or having someone rest their newspaper on my head (yes, that has actually happened, and yes, I’m way too short for public transport! But that’s another story for another day). But again, through the use of data we have been able to address this issue by evolving a system that keeps timetables stable for even the most complex networks. The system monitors train operations in real time and delivers up-to-date information, including the fastest route when multiple route options are available, to passengers if schedule issues arise, and this is all powered by data.

What I’m trying to in-eloquently state is that data will enable city management, to look and sift through the information in order to establish more cost effective, efficient, and automated ways in running their cities before investing an arm and a leg on costly projects!

Better Human-Computer Interaction

How many of you use an automated telephone banking, payment systems?

Phone banking system:“Hello, welcome to our automated payment system. Say 1 to check your balance, 2 to pay your bill, 3 to report a card lost or stolen, 4 to learn about our new products, 5 to repeat the menu, 6 to go back to the previous menu, or 7 for anything else.”

Me:[clearly and audibly] 7!

Phone banking system:ok great, 7!, Before I can get you to the right department, can you tell me in a few words what you’re calling about?

Me:Discuss my account

Phone banking system:Ok great! Tell me in a few words, what you need to discuss?

Me:My statement does not look right

Phone banking system:I’m sorry I didn’t quite get that! Tell me in a few words, what you need to discuss?

Me:My statement does not – 

Phone banking system(cutting over me): I’m sorry I didn’t get that! Tell me in a few words, what you need to –

Me (getting irritated): Put me through to an operator

Phone banking system:I’m sorry I didn’t get that! 

Me (nostrils flaring in anger):Put me through to a customer Service Representative

Phone banking system: I’m sorry I didn’t get that! Tell me in a few words-

Me (indignant with rage, frustration and ready to pummel my phone): Put me through to a freaking *%$#$ customer %^** Bleep representative NOWWWWWW!!!!!!!!!!!!

I think it’s safe to say that 90% of people use these systems to do their day-to-day banking, check bills, balances, etc. And I bet like me, you are no stranger at yelling down the phone at some robotic voice enhanced with a soft accent to give it a human element (my AMEX system has a nice sounding Scottish gentleman), no matter how friendly the robots voice, long menu options, and inaccurate voice recognition technology can make this experience a nightmare for users, and almost impossible for them to conduct their business quickly and efficiently. Well, here is where efficient use of data can help, coupled with the right technology such as machine learning (ML) or artificial intelligence (AI), providers can deliver faster, more accurate and reliable interactions, and overall, a much more satisfying user experience. These type of tools can learn over time and can provide quicker, swifter responses and help to reduce time, and cost, whilst delivering excellent customer service capabilities. We have seen these voice recognition technologies, such as Siri, Alexa, etc., where human-computer interactions are now becoming more fluid and efficient. Making them even more efficient than human run processes (off shore call centres with pre-prepared scripts come to mind! (slaps own forehead in despair).

Securing Technology

As I have been harping on and on about in the previous paragraphs, we are in a world of change, and technology is leading the way whether we like it or not! How many functions do you carry out on your smart phone alone? Internet banking, pay bills, shop on line, order food… the list goes on and on! How many of you can actually activate voice command in your smart car? Or how about your Fitbit or Apple Watch? I remember the day I got my first Apple Watch. As a kid I used to love the Back to the Future movies, and wondered if I would ever see the day where I too could talk to someone through the watch on my wrist like Marty McFly. I can honestly say the day Apple released their 1stgeneration watch was one of the best days of my life, to be able to realize a childish whimsy and see it come true! 

What I’m trying to say here is that we are now becoming increasingly reliant on technology and the role technology plays in our lives is very significant. Whilst this all comes with tremendous advantages in terms of convenience and efficiency, this advancement of technology also comes with increased risks. You see, this same sophisticated technology can also be harnessed negatively, and we are seeing a rise in sophisticated cybercrimes, such as data breaches, hacking, and identity fraud. These cybercrimes are very difficult to predict, pre-empt, or detect until it’s too late. However, it’s safe to say that the good guys do have a fighting chance in winning. Data, when combined with AI, can be a powerful tool in the fight against cybercrime. Through analysis, patterns can easily be detected, and the source of malicious attacks can be quickly found and addressed. Vulnerabilities can be spotted and corrected, which can allow organizations to better mitigate risks and prevent breaches or attacks. 

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How Financial Services institutions can Leverage their Data to Comply with Complex Global Regulations

As a result of the financial services collapse, and the rapid onslaught of everchanging regulations, we have seen that the financial services industry has evolved dramatically. In terms of operations and service delivery alone, we can see great improvements within organizations. However, what have seen is that most organizations fail to leverage the information within their own databases. Heavy reliance on behemoth brittle legacy systems, data living in silos, lack of accountability and good robust data governance, and not knowing where data lies, are all key contributing factors to this. Even good intentioned creations of so called “data lakes” have turned into fly infested stinky “data swamps,” where you can’t tell the muck from the mire! 

However, my dear reader, I can safely say that this is certainly all about to change dramatically within the financial services industry. The banking sector alone processes immense volumes of data which is created and collected. Some industries predict an exponential growth in the volume of data before 2020. “The big D” is a huge step towards the development of the financial services industry, and will propel it out of the dark ages into the new millennia! Let’s look at how BD will improve and enable the FS industry: 

Detailed Progress Evaluation

Service Delivery improvements 

The Pros of the Big D for FS

1. 1. Fraud Detection & Prevention
2. 2. Enhanced Compliance Reporting

Customer Segmentation

Personalized Product Offerings

Risk Management