As regulations and risk grow, AI expands further into RegTech

In today’s global marketplace, financial services firms must grapple with competition, increasing regulation and market volatility while also maintaining profitability and growth in a world disrupted by emerging technologies and FinTechs. Ahead of RiskMinds International, Alistair Rennie, General Manager, IBM Watson Financial services, explores how AI is stepping into the help. 

One significant challenge lies in how firms manage risk. Whether it be employee conduct, ethics, third parties, or data, risks are a constant in conducting business today and can have major implications. One control failure left unchecked could lead to bigger issues such as a heavy fine that can drag down a company’s reputation. Regulators also now expect broader participation from a company’s first line of defense, making managing risk even more complicated.

Current risk and compliance systems are disparate and disconnected, often with varying taxonomies, user interfaces, and skill requirements. This makes it increasingly difficult to achieve a holistic view of risk and compliance, and results in a lack of confidence in what a bank’s real-time obligations and associated responsibilities are. Most importantly, this fails to engage the first line of defense – the employees who need the proper tools to make the best and most informed decisions.

According to recent research by independent analysis firm Chartis Research, the success of ongoing GRC programs depends on the full engagement of first line of defense employees using the broad range of available capabilities in the right way – something that can be hard to achieve with what are often complex processes.

Simply put, traditional systems and business processes just aren’t enough.

IBM’s Watson Financial Services has a new and bold approach to help banks combat these challenges. Our RegTech portfolio is the only offering available that brings together AI, the expertise of Promontory Financial Group, and IBM’s technology solutions to transform how clients manage risk across the areas of Governance, Risk, and Compliance; Financial Crimes; and Financial Risk.

During the Watson Financial Services Summit for Risk and Compliance, IBM announced significant advances to the portfolio to address these challenges.

The new advances in our portfolio include:

• Next-Gen Governance, Risk, and Compliance
  Our next-gen governance, risk, and compliance portfolio includes significant enhancements to IBM’s award-winning OpenPages 8.0 with Watson, which transforms the way risk and compliance professionals work. By providing a holistic view of risk and regulatory responsibilities, OpenPages 8.0 with Watson empowers the first line of defense to more actively participate in risk management as a part of their day-to-day activity. Leveraging Watson technology, users will now be able to more easily interpret complex issues and match them automatically to controls and obligations, as well as analyse losses, emerging risks, and failed controls. OpenPages 8.0 with Watson will also feature a completely reimagined, intuitive user experience to allow for increased engagement, making it more efficient to use, and no previous training is required. Finally, new regulatory content provided by Watson Regulatory Compliance will allow professionals to a have a complete, timely and accurate view of all their responsibilities. This automates what today is often a labor-intensive, error-prone process.
• Financial Crimes
  Using artificial intelligence technology, IBM Financial Crimes Insight with Watson accelerates high cost due diligence activities and helps risk and compliance professionals more efficiently make decisions in regards to AML transaction monitoring and sanctions/PEP alerts generated by existing systems. Today’s new release of IBM Financial Crimes Insight with Watson features an updated user interface, tighter integration of due diligence data and cognitive customer insights, and more advanced analytics and visualisations to improve the customer experience.
• Financial Risk 
  Announced in May 2018, IBM’s acquisition of Armanta Inc., a provider of aggregation and analytics software to financial services firms, advances our capabilities in financial risk. With Armanta integrated into our financial risk solutions, clients are now able to more effectively aggregate data across multiple systems in near real-time while also building their enterprise reporting solutions on top of existing analytics. Together, Armanta’s powerful aggregation technology complements current IBM solutions providing clients with the most effective tools for financial risk.

Using IBM’s RegTech solutions, financial institutions can better link the external regulatory environment to their business needs. Clients can search libraries of relevant regulatory requirements, evaluate their impact to the business and create actionable tasks to build shareholder trust and increase the efficiency of managing regulatory change moving forward.

Financial institutions are quickly realising that the combination of AI technology and domain expertise is needed to help them make more informed decisions, understand regulatory requirements, and close the knowledge gap.

For example, HSBC, an early beta adopter of IBM’s new governance, risk and compliance technologies has rapidly scaled OpenPages 8.0 with Watson to their 15,000 users across 70 countries. Currently, the system has more than 400 unique users every 24 hours, with more being added as the platform expands.

“We have already seen strong adoption of the IBM solutions by our first and second ‘line of defense’ professionals who are eager to use the system in their day-to-day work,” said Cathy Ryan, Head of Operational Risk IT, HSBC. “It’s now easier to identify risk stewards, risk owners and control owners, for example, and enable our teams to address issues much more quickly and effectively. Looking at the big picture, that means we are in a stronger position using these new technologies and processes and have increased the level of transparency and accountability for operational risk across HSBC operations.”

The business landscape, especially in financial services, continues to shift. As exposure to risk grows, more and more data must be considered to mitigate threats and gain competitive advantage. At the same time, organisations must keep pace with the growing volume of evolving regulations and compliance issues. And that’s where our solutions come in.