This year’s Global RegTech Summit took place in London on May 20, and was attended by experts and guests from a wide range of industries from finance to technology.
One of the many interesting panels focussed on managing regulatory change, and discussed innovations and strategies that could help firms manage that change.
The panel was chaired by Michael Rasmussen from GRC 2020. Speakers included Eleanor Kelly (JP Morgan Chase & Co), Dawd Haque (Deutsche Bank), Dilan Bastin (Portfolio Technologies) and Kayvan Alikhani (Archer Technologies).
As a starting point the chair asked the panel about the main challenges in regulation change management (RCM) in the current environment where everything, from geopolitics and external risk environment, were constantly evolving.
Haque opened the discussion by saying firms should constantly stay up to date and read all publications that are relevant to or can have an impact on their operations. He insisted that this was a difficult task and there were risks involved (a sentiment that we fully approve of here at GRIP!).
Some of the issues faced by firms included mistranslation, operational costs, and making sure firms were following the same steps as everyone else. “Sometimes it’s not about getting it right. It’s about getting it like everyone else,” Haque added.
He concluded by mentioning a number of other challenges such as the frequency of testing, constant changes in systems, keeping everything updated and post-implementation analysis (such as how many manual tasks remained there for the operations team).
The next comments came from Alikhani, who insisted that firms must think about whether they have coverage and visibility. He also advised firms to reduce noise by deciding what is applicable and actionable to them, and focus on that.
“In the past RCM was mostly about what was happening outside. Now it is equally about how those changes can impact operations internally,” Alikhani added.
Bastin addressed the question from a digital assets perspective, explaining that the key challenge in the crypto world was that the technology was evolving faster than the regulation.
“We already have a huge number of different blockchains and web layers. But the regulation has just started to come through. It means that all of a sudden technology is no longer a competitive advantage as everyone else is catching up on that front. This has a huge impact on RCM.”
The final comments came from Kelly, who said there was simply too much regulatory change happening across sectors right now. She advised firms to choose the right time to strike to manage those changes more efficiently.
“We simply focus on where we can work together so the change is manageable,” Kelly added.
Haque concluded the first part of the discussion by saying, “There is no competitive advantage for a firm to be ahead in the compliance sector”. This may sound odd, but it is a sentiment often voiced by deep experts signalling that one cannot anticipate rule-making and it is particularly true and relevant against the backdrop of the current rapid pace of regulatory change.
“Embrace the technology, but also understand it.”
Dilan Bastin (Portfolio Technologies)
Role of tech and AI
The discussion then moved on to the subject of how advances in technology have impacted regulatory change management. The chair asked panelists about their thoughts, especially on the role of AI in RCM.
Alikhani started by admitting that the volume of complexity was daunting and super expensive. But he argued that AI was helping as firms were now less worried about their RCM experts leaving and becoming competitors.
“But the human perspective is still a must have. Its not acceptable to blame the machine if things go wrong. There must be explainability around how the decision came around.”
Alikhani insisted that technological upgrading and regulatory compliance must go hand in hand. “Sending large scale high speed information to customers is cool but regulators need answers,” he added.
Kelly added that, at this point, her organization was focussing on data quality, patterns and trending, as there was a vast amount of data to handle and sometimes it was not manageable in individual operational units.
“We are building models which help the teams. The operations department is becoming savy with technology. They are learning how to use it.”
Whist things were evolving and machines were learning to make decisions, Kelly insisted that human interaction was still key in order to avoid mistakes. She warned that regulators are zero-tolerance individuals and it is important to get things right.
Haque commented on the question from an FCA perspective and said the UK regulator receives huge amount of data on regular basis, some of which is fraudulent.
He explained that cleaning that sort of fraudulent data was a huge headache for the regulator. Firms were also partly to blame for the quality of data they were providing. The FCA then has to spend time and money on cleaning that data.
“You cannot do this everyday with humans. So you have to use some machine or AI to manage that. And if something goes wrong then you can find out the mistake from the machine and tell the regulator we have spotted it.”
“There is no competitive advantage for a firm to be ahead in the compliance sector”.
Dawd Haque, Deutsche Bank
What about reliability?
Rasmussen admitted that AI was not only faster in reading data but was also reading it 30% more accurately. He explained that this was partly because, unlike humans, a machine stayed on task and focussed better.
He then asked the panelists to give their thoughts on the reliability of machines when it came to dealing with RCM.
Haque answered by saying it was a good news that the regulatory rulebook was being rewritten. There was a recognition that that book was too complicated. it means that new regulatory changes and evolving technology can now move forward together, in tandem.
Bastin insisted that the AI of today was the best it has ever been. Companies are tapping into open sources and creating rules and learning how to code. “RCM is an ongoing issue for many firms. There are new issues to address everyday. AI today can scan everything in seconds, tell you what applies to you and to your customers. We never had this before at our finger tips.”
But, like other panelists before her, she insisted that embracing technology also meant having the right people in place to verify what was happening. “Embrace the technology, but also understand it,” she advised firms.
Alikhani said it was important to have a balance between adopting technology and thinking about governance. Firms are getting better at using AI for compliance purposes but there is also a healthy level of scepticism.
“We need to ask where the models are being trained. Will the training benefit me? Will it benefit my competitors? Smaller banks now look forward to teaming up with peers.”
Haque added that the emergence of AI meant fewer people at the top who knew everything from front to back and kept an eye on things. Advances in technology also meant that there will be no juniors working below those top level experts and learning on the job.
“Start small, focus and be specific. Make a blue print and adopt across organisation. Show success.”
Kayvan Alikhani, Archer Technologies
Final thoughts
The last part of the discussion focussed on how solutions were becoming more centralized, and how technology was coming together to address challenges around RCM.
The chair also asked the panelists to give their final thoughts on the adoption of technology for RCM purposes.
Alikhani said technology was now helping firms map information. The ability to review a huge amount of regulatory change in a matter of days was a radical shift. It saved time and money for firms. it was also telling firms about other internal impacts.
Kelly argued that the data model needs to lend itself to those solutions, and that would be a game changer. She agreed that technology helps and fewer firms now need to employ people to explain and implement the regulatory changes.
Haque said, “Go back to basics and focus on data integrity and quality. Buidling shiny tools on load of rubbish is not helpful.”
Alikhani suggested to “start small and focus and be specifics. Make a blue print and adopt across organisation. Show success.”
In conclusion Bastin suggested that “RCM should not be just about compliance. It should be used by businesses to grow and make strategic decisions and help customers.”
