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Pegasystems, IBM Watson and CLS on regtech, KYC and data

Reetu Khosla, Pegasystems

As far as buzzwords go, regtech is as good as it gets. With a word that gives it pretensions of innovation and modernisation, regtech tries to address that which keeps many corporates awake at night – meeting those elusive regulatory requirements. Many companies have now turned their eyes to this relatively modern field to solve many of the fraud and crime problems that have been haunting them for years.

IBS Intelligence decided to get an account from the horse’s mouth on the matter, and had a chance to sit down with Reetu Kholsa, global head client lifecycle management, onboarding & KYC, Pegasystems, during the days of Sibos in Toronto. Similarly, IBM has been leveraging Watson’s AI to make strides into regtech, helping companies to meet KYC and AML standards. Vivek Bajaj, vice president, global banking and financial markets, IBM, tells us about some of the new areas their flagship technology is being applied to. We also have a chat with CLS, a major player when it comes to FX trading, as it process around 55% of all FX global trades.

Pegasystems is a company with over 30 years of baggage, which now focuses on helping companies out keep up with regulatory demands through AI & robotics. “Regtech itself is not a silver bullet. Compliance is a topic much broader than that, that involves a front to end transformation, with new ways to manage regulatory rules an underlying technology,” Kholsa told IBS Intelligence.

“It’s also continuously evolving, as new regulations go live or change,” she continued. “We use our technology around already-established onboarding processes. We wrap our technology around it and we help them understand and process that data gathered through these systems.

“AML is very complicated, and is the most challenging one at the moment. Luckily, the US has been leading with new companies that try to address this, and so has Europe. (…) Regtech is all about making it cheaper, faster, and more effective to keep up with regulation, and now we are getting to a point where many companies are doing a great job at it.

“Regulation can change every month, so what does that mean? Banks ask themselves, o we need to change the technology? The approach we have taken means that we work with ex-regulators, lawyers, etc., to craft the set of rules in advance so by the time new regulation goes live, our clients are ready from day one. However, our deployment time is roughly three months, so it needs to be done ahead of time.”

In a statement, she: “Financial crime is rife on a global scale. In the UK alone, the National Crime Agency estimates as much as £90bn of ‘dirty cash’ flows through the financial system each year. But new anti-money laundering and anti-terrorist financing regulations impact clients time to transact, banks operational costs and risks.

“Regtech in the fight against financial crime is only part of the solution. Already, it has helped the most important financial establishments to rapidly respond to audit and regulatory findings, however, junior RegTech startups won’t be able to meet the difficult demands of compliance for some of the world’s largest financial institutions. Regtech won’t be able to scale and even has the potential to create more technology silos. In fact, regtech solutions will fail unless they actively help simplify the technology landscape, while providing value, including multi-jurisdictional, multi-product onboarding and transparency to the client and front office for large corporates, streamlining time to transact and essentially improve customer experience. The goal in regtech solutions should go beyond regulation and focus on streamlining onboarding in the digital age. Moving from 100 plus days to 2 days or less for new products and services.”

Vivek Bajaj, vice president, Global Banking and Financial Markets at IBM, who has great expertise on IBM’s AI Watson, also has plenty to say about its potential in financial service. “Regulatory compliance, AML, KYC, conduct surveillance, customer engagement… The applications are many”.

“Many FIs face an unending flow of regulations, and it is a great area of investment. They need to redirect regulation, compare it with internal policies, and determine their obligations from this new regulation. And this is a very manually-intensive process. FIs hire up to tens of thousands of people just to do that piece of work.

“We acquired a company called Promentory Financial Group, which is pretty much 600 financial regulators – a strange acquisition for a tech company like IBM. But domain expertise is essential, and it helps us inject the regulation and internal policies into Watson’s logic and cognitive skills, cross-comparing it with previous and similar cases and actions.

“Financial crime and KYC is a great area, and it’s a very difficult thing to do. It’s very hard to create an accurate profile of SMEs. We will be able to use both unstructured and structured data sources to extract insights, and fill in the customer information file.

“Watson was able to complete 75 customer files in the time the team did 25 manually and couldn’t complete it.

“Many banks are in the range of +95% of false positives, which clearly tells us that something is wrong with the system.”

“We are also helping institutions in staff surveillance. Bad guys can also be found in our own companies, unfortunately, and Watson is able to read emails and spot a leak in an email in code that only talked about the weather, seemingly.”

Lastly, an interesting insight is the one provided by CLS. Alan Marquard, chief corporate strategy & development officer, points out that their unique position on the FX trade market would in the future allow them to obtain crucial insights on these exchanges, possibly unique in the world, which would potentially help companies create profiles of their onboarding customers.

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