By Charles King, Pund-IT, Inc. June 14, 2017
For those who work outside of finance, banking and insurance, along with a handful of other professions subject to strict government and industry controls, regulatory compliance and risk management are like the declension of irregular Latin verbs—incomprehensible tasks best left to others. That’s understandable but it doesn’t detract from how critical effectively managing those processes is for organizations and consumers, or the value they confer on business deals and agreements.
However, folks with regulatory and fiduciary responsibilities are under increasing pressure, especially when their employers’ interests span global regions and markets. Why so? Because of the growing number of compliance rules and issues, and the increasing complexity of regulatory landscapes. Consider the challenges faced by a global bank that does business in the U.S., the U.K and the European Union, along with a host of other countries worldwide, each having its set of rules and regulations.
In addition, managing risk and compliance is expensive, taking upwards of 10%-15% of the annual operational budgets—about $270B—of global financial services organizations. Those same companies spend billions more on what might be called the “cost of insight.” For example, it’s estimated that financial institutions spend $18B-$21B on anti-money laundering (AML) efforts, $16B-$19B on know-your-customer (KYC) requirements, and $11B-$15B to conduct surveillance.
Finally, regulatory requirements are in a nearly constant state of change. Consider that in answer to the 2008 financial crisis, the U.S. Congress in 2009 passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, a massive bill that included some of the strongest financial industry regulations since the Great Depression. Today, a regulation-wary President and his colleagues in the Republican-led House and Senate are attempting to scuttle Dodd-Frank and allowing banks and other financial institutions free rein to manage themselves.
Whether you agree with this unwinding or not, it’s easy to see how the likely comprehensive changes will impact already harried banking and finance industry professionals. That’s why IBM’s new Watson- and Cloud-enabled cognitive solutions and services for managing financial regulations are worth close study.
Watson Financial Services decoded
What is the company up to here? The fact is that while IBM has long offered financial services and solutions for managing regulatory compliance, it is substantially upping its game due to a pair of related developments. First and foremost, IBM’s Watson cognitive and artificial intelligence platform is particularly adept at consuming and analyzing massive volumes of complex information, making it particularly valuable for managing compliance processes.
Second, last September IBM announced the acquisition of the Promontory Financial Group, a market-leading global risk management and regulatory compliance firm. Promontory has a solid reputation for providing astute guidance, and now operates as an IBM subsidiary. Plus, its 600+ consultants have deep and varied expertise from years of working as senior leaders of regulatory bodies, financial institutions and Fortune 100 corporations, experience that aligns closely with IBM’s core customers.
With Promontory and Watson as foundational elements, IBM has the pieces in place for a unique cognitive-enabled risk and compliance service portfolio. The new solutions include:
- Watson Regulatory Compliance is designed to help financial institutions better understand and address changing regulatory requirements. IBM plans to initially feed regulations from 200 sources into Watson to help identify and tag customers’ potential obligations. The platform’s natural language capabilities will help compliance professionals simplify their daily, manual activities and view specific regulatory requirements impacting their organizations. Those views can be customized according to geographies, lines of business, products, processes and compliance areas, and also be focused on the specific parts of regulations directly relevant to users’ organizations.
- IBM Financial Crimes Insight with Watson applies cognitive computing, intelligent robotic process automation, identity resolution, network analysis, machine learning, and other advanced analytics to accelerate due diligence activities. As a result, organizations can better understand and manage anti-money laundering (AML) alerts generated by transaction monitoring systems. In addition, financial institutions will be able to leverage Promontory’s expertise to increase the speed and accuracy of their customer verification and adverse news collection processes for know your customer (KYC) requirements, as well as reduce false positives and speed investigations for AML reviews.
- IBM Algo One Big Data Foundation integrates IBM’s big data technologies with risk data management applications and an intuitive user interface. That will allow financial firms to require shorter amounts of time to examine risk scenarios and scale efforts to meet the dramatic increase in requirements for Fundamental Review of the Trading Book (FRTB) regulations, Valuation Adjustments (XVA) measures, and liquidity analysis. IBM Algo One should also help banks move their use of big data from experimental or niche applications to daily production processes
The new Watson Financial Services solutions are all available IBM Cloud.
Just as businesses and markets are in constant states of evolution so are the government agencies and industry organizations that oversee those businesses. The quality and quantity of that oversight varies widely but it is especially acute in highly impactful areas, including finance and banking where process or systemic failure can lead to critical, even catastrophic problems.
The accelerating variety and volume of rapidly changing financial regulations make them attractive targets for innovative technology solutions, like IBM’s Watson cognitive and artificial intelligence platform. But while the company has long offered clients tools for managing regulatory compliance, it needed to step up its game to broaden and deepen the scope of those solutions.
Last year’s acquisition of Promontory Financial Services, along with continual enhancements in IBM’s cognitive platform and portfolio provided just what the company needed as the new Watson Financial Services offerings clearly demonstrate. Overall, the new platform is likely to be enthusiastically welcomed by IBM’s customers in banking, finance, insurance and related industries. Over time, it is also easy to imagine how these same or similar innovations may ease the compliance burdens of other businesses, industries and markets.
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