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Home Compliance

The Real Return on Risk and Compliance Technologies

by Grace Brasington
March 2, 2018
in Compliance, Featured
concept of high-tech systems

The Value of Big Data

A crucial shift is underway in the financial services industry when it comes to regulatory compliance; cultures are changing, and new value is being created for banks and their customers because of AI technology. Grace Brasington of Watson Financial Services discusses the role technology can play in bank’s business and regulatory successes.

When it comes to regulated industries, few are more highly regulated than banking and financial services. The regulatory landscape is rapidly changing, and as a result, regulatory technology (regtech) has emerged to help banks keep pace with competitors. While the combination of regulation and technology to solve business problems is not new, it is proving more essential than ever as regulatory obligations become more complex. As a result, regtech is already proving its worth by helping banks find more efficient and effective ways to manage their compliance obligations.
In financial services, risk culture is changing from one that reacts to regulatory changes to a proactive one, seeking to create new value for the bank and its customers. There’s no reason why revenue and profit goals must conflict with sound compliance and risk management policies. Technology can play a role in enabling banks to have both.

Artificial intelligence (AI) and other technologies such as analytics are not only helping banks comply with laws and regulations, but also helping to mitigate the potential for fines and penalties. In fact, these types of technological innovations often encourage employees across the organization’s lines of defense to make compliance their holistic responsibility. This ultimately results in better outcomes for the business, the institution and the customer.

Coping with the Cost of Compliance

In the face of today’s regulatory environment, there’s a genuine concern among risk and compliance professionals of getting anything wrong. There are various regulatory stakeholders at the federal and state levels with various remits and priorities. International institutions have to be compliant in various jurisdictions. Additionally, a bank’s compliance arm faces numerous priorities, including regulatory change management, cybersecurity, employee conduct surveillance, anti-money laundering (AML), know your customer (KYC) requirements and more.

With that as a backdrop, regulators are carefully scrutinizing institutional risk culture. They’re watching as the tone set at the top by the CEO and board of directors resonates throughout the organization. Organizations now understand that there is a requirement to go beyond a “check the box” mentality and follow the spirit of compliance so that the institution drives good behavior even when nobody’s watching. To meet these heightened expectations, financial institutions are now constantly reviewing key processes to ensure that they are not only compliant, but also aligned to achieve client satisfaction.

At the same time, banks face significant cost pressures. They are competing with, and in some cases collaborating with, the fintechs of the world. This environment means that banks are now operating in an uncertain and very fluid marketplace. Luckily, they can now find the business value in compliance, finding ROI in what was previously the cost of doing business.

From Risk Administration to True Risk Management

At IBM, we truly believe that technology is the path forward. In June 2017, IBM and Promontory Financial Group introduced a portfolio of solutions for regulatory compliance and financial crimes unlike anything else on the market today. Since that time, we’ve begun applying AI capabilities to real problems that help clients with the costly and time-consuming aspects of understanding regulatory requirements, uncovering financial crimes and managing financial risk.
This new generation of technologies, enabled by AI, allows banks to move from being information gatherers to information analyzers and from risk administration to true risk management. In effect, technology can help banks realize the business value of better compliance.

So how do these technologies make a real impact? For example, in the client complaint process, regulators want to know that a financial institution is not just looking to resolve complaints quickly, but is really getting to the root cause of the complaint. Natural language capabilities provide the ability to review client complaints in the aggregate to identify emerging issues or themes. Then it’s possible to reduce complaints going forward and provide a more positive client experience. Using these technologies is good business where the needs of the customer as well as compliance objectives are met.

When banks perform customer due diligence when onboarding a client, the information collected to comply with KYC requirements (related to AML) can also be useful in meeting the customer’s banking needs. This is where compliance and customer service go hand in hand.

Another place where technology comes into play is in employee conduct surveillance. There are regulatory mandates regarding market abuse for trading, and technology can now analyze both voice and text conversations, along with associated transactions and outlying data points in a surveillance platform. Advanced natural language processing and deep learning can identify features in context that would be missed by traditional rules-based systems. Algorithms trained specifically to identify concerning or inappropriate conduct in the ingested data process the information through layers of a smarter decision tree — or what we call “the solution’s neural network.” The algorithm refines itself as goes at each stage, leading to a hierarchical representation of all possible events associated to the risk in question, weighted by importance. Such techniques enable a holistic surveillance platform, providing visibility into the full context of a situation and profile employee behavior over time in order to discover potential risks and emerging compliance issues.

Making the Most of Big Banks’ Advantage in Big Data

Cognitive capabilities and compliance also drive ROI by uncovering useful insights within the enormous volumes of information that banks collect for regulators. Some say that large banks have an advantage in the sheer volume of their own data resources — far more than any fintech startup. But big data is only a competitive advantage if you use it.
Today, data volume in banking is growing at unprecedented rates. Artificial intelligence technology enables banks to distill that information into something meaningful, like actionable information about their clients leading to a better experience. The answer lies in the data, so let’s derive some insight from it. That’s where the opportunity and the return lies — using digital tools to mine digital resources for real value.

With the right technology, good compliance enables good business.


Tags: Artificial Intelligence (AI)BankingBig DataFinancial ServicesRegTechTone at the Top
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Grace Brasington

Grace Brasington

Grace Brasington is Vice President of Risk and Compliance at Watson Financial Services Industry Platforms. She has 30 years of experience in the financial services industry, holding executive level roles at advisory firms and financial institutions.  Grace currently serves as IBM’s Global Leader for Risk and Compliance in Watson Financial Services Solutions, Industry Platforms business.  Grace has focused her career on risk, compliance, data management, predictive analytics, operations management and data governance. Prior to IBM, Grace has served as a Top 10 Financial Institution’s Chief Compliance Officer.  In this capacity, she was responsible for the continuous development and enterprise-wide implementation as well as execution of the bank’s compliance program. Prior to her CCO role, she also has held executive roles as the Chief Risk Officer for a $3 billion technology and services company. Grace has developed, built and guided multiple financial institutions strategy for leveraging and deploying data and technology capabilities to solve critical business issues with an emphasis on data governance, risk and compliance. She has extensive experience in leading businesses through challenging times and facilitating their mitigation of risk and their adherence to regulatory and compliance dictates, while driving and managing compliance change and championing risk management initiatives.

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