Archive for Oct, 2017

Speaker Interview: Andrea Brancatelli

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Andrea Brancatelli, MoneyGram International, Senior Legal Counsel

What are the 3 biggest challenges for in-house teams in FS firms today?

The first challenge is an increase in regulations, which in certain areas seem to overlap and under certain circumstances are difficult to apply, due to conflicts with pre-existing legislation or lack of local (secondary) legislation.
The second challenge is political instability (just to recall Brexit, the Turkish coup d’etat and now the Cataluña crisis), which impacts business models and legal structures used by corporations.
Finally, increased difficulty in correctly legally-classifying new legal structures, which arise from the use of new technologies, especially when such legal structures are used in various jurisdictions.

What key steps can legal teams take, to create a higher value proposition for the business and for customers?

Work closer with business teams and customers in order to better understand their needs and therefore propose tailored legal solutions which, on one hand, work case by case for the specific situation, and on the other hand, may be used – with minimum changes – also to regulate future different scenarios.
Translate in practical effective terms – and in advance – the effects of new upcoming legislation and simplify regulatory fulfilments for business and for clients, also through the use of new technologies (e.g. apply e-signatures or simplified binding means where possible).

What hurdles do legal teams face, in terms of implementing and delivering value from new technology solutions? How can these be overcome?

A main hurdle is the lack of laws/regulations/practice with respect to new technologies that the market is implementing, but the regulators have not yet legally classified (e.g. blockchain). Such a hurdle may be overcome by adopting known classifications and standard law principles, and in case of doubt carrying out formal inquiries to the authorities, in order to open a discussion and eventually obtain a sandbox.

How do you view the current level of interaction / collaboration between in-house teams across the FS industry, and how could this develop in the future?

Market associations are often an occasion to interact / collaborate on common legal topics, however, it could be useful to develop more interaction also with the authorities. This could be achieved by increasing the number of consultations and/or roundtables on new laws or modifications to current laws, especially on legal aspects of fintech where there is still great uncertainty

Which pain points for in-house teams most lend themselves to automation, and which pain points will be the most difficult for technology to fix?

Contract drafting (especially for standard agreements), data storage (for corporate secretary) and regulatory fulfilments (for timing of filing with authorities) may surely benefit from automation. It will be more difficult to substitute legal advice or negotiations, where technology may only serve as a support to lawyers driving in person.

Why will you be speaking at Finance Edge’s Next Generation In-House Summit, and what do you hope to get out of the event?

I believe that at all topics related to new technologies in the financial and legal sector require maximum attention and maximum support by all stakeholders, since what we are discussing today will be what we will use and work with for the coming years. As e-signature seemed a revolution only few years ago and now is customary in most business, today we are asked to shape the main legal features of new game changers that will have an important role for the future. I look forward to learning about new approaches that may be eventually be used also within the money transfer business.

Speaker Interview: Stamos Fokianos

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Keynote interview during the ‘RegTech Summit Europe’ which was held in London on 27 September 2017.

Speaker: Stamos Fokianos, Credit Agricole Corporate & Investment Bank

Interviewed by: Ben Richmond, IRTA

Ben:The past year has seen a lot of development in RegTech, including the rise of AI. Compliance has become cool; and we’ve seen the regulators talk about machine-readable rules, which is a major step forward in our industry. Is RegTech delivering on its promise?

Stamos: Instead of having a long process of releasing new algorithms, what we’re trying to do is create a framework that will adjust itself in real time. The challenge is to convince compliance departments and regulators that you’re not creating an uncontrollable monster.

Ben: Have you seen practical examples of RegTech helping, and bringing regulators and financial institutions together?

Stamos: MiFID has created the ground for things like price caps/controls and price checks before we issue a price, whether it’s on our internal systems, an MTF, non-MFT, or single dealer platforms. Last year we thought MiFID would be universally implemented, and that the US would adopt it/provide equivalence. We now know that it won’t apply globally, so we are doing the opposite of building things to achieve economies of scale – we’re now building customised solutions for Europe and non-Europe, and fragmenting the market again. Everything is now focused, rather than harmonised, which increases expense and risk.

Ben: £5bn is expected to be deployed in RegTech over the next 5 years. Are you seeing new solutions coming to market? In which areas are you seeing the most innovation?

Stamos: We are investing a multiple amount more on technology today, to make money, than we used to. Margins are still compressing, and it feels like we’re running just to stay still. KYC is an inefficient and duplicative process , because everyone does KYC on their own. A few fintechs are trying to solve this, but the problem isn’t the technology – people need to be aligned.

Ben: How do you see the RegTech space developing over the next 5 years?

Stamos: I think that fragmentation will happen. Regulators in different regions won’t agree, and some people will benefit as we will need customisable solutions. I hope I’m wrong!

RegTech Summit US

November 8, 2017. New York

Join us on November 8 and meet other experts and innovators in the field.

Speaker interview: Nikhil Aggarwal

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Nikhil Aggarwal is Data & Analytics Executive, FinTech Entrepreneur in Residence at iValley Innovation Center

Given all the hype, where has RegTech fallen short over the past year, and where has it exceeded expectations?

Increasingly complex regulations coupled with heightened scrutiny from regulators has resulted in more banks and financial institutions building out broad spectrum RegTech programs. This has resulted in financial institutions applying RegTech solutions to use cases including i) enhanced regulatory reporting, ii) robust biometric and digital identity management, and iii) streamlining of KYC, CDD and anti-money laundering efforts. As a result, banks and financial institutions will be better placed to address a range of national and international regulations, including PSD2, AMLD4, DFS 504 and MiFID II.
Adoption and implementation efforts have not always been consistent due to evolving compliance requirements. In addition, RegTech efforts continue to focus on hygiene factors, such as building out data lakes and reporting routines, but we have yet to apply advanced analytics, machine learning and artificial intelligence techniques beyond initial experimentation.

Which areas of regulatory compliance will we see revolutionized by RegTech in the near-term, and which areas still pose the biggest challenges for RegTech?

RegTech is radically changing the mitigation of money laundering and other financial crime risks. Banks have leveraged RegTech data management solutions to significantly improve their KYC and KYT processes. As a result, client due diligence efforts during on-boarding and periodic risk reviews are more comprehensive. Banks are now making proactive decisions to deepen existing client relationships and de-risk and exit identified clients. Robotic Process Automation is also being applied to mechanical ETL data processes so investigators can focus on higher value-add sub-processes.
The core challenge in RegTech (from the solutions providers’ perspective) is to bridge the gap between risk management/business leadership and technologists. Often times, the value proposition and sales cycle focus on a predefined technology product which may not capture a broader set of evolving risk nuances. As a result, a proposed solution may check the technology boxes, but will not address all the underlying regulatory, compliance and operational risks.

To what extent is RegTech benefitting both financial services firms and consumers (through lower costs, improved products and services, etc.), and what is the scope for this to develop?

RegTech solutions are increasingly focusing on both the operational and risk identification dimensions. Increased efficiency has resulted in reduced noise in the form of “lower false positives,” and sharpened risk identification and coverage in form of “higher true positives.” This allows financial institutions to optimally allocate their resources for an improved PNL, and to pass savings on to clients with a better customer experience.
From a development perspective, there is an opportunity to build both governance and
change management modules and embed these into RegTech solutions. Audit trails, traceability, sign-offs/attestations, and governance are core thematic areas during a regulatory examination.

How can large firms most effectively respond to, and engage with, the growing band of RegTech providers?

Collaboration between large firms, RegTech providers and regulators will result in significant mutual benefits. Large firms must share contextual knowledge (i.e., their risk footprint, customer segments, product set) and their interpretation of regulations with RegTech providers. Similarly, providers must explain their solutions and answer the fundamental questions on how core risk issues are being addressed. This dialogue needs to reach a granular level where data elements and the technology stack are reviewed and thoroughly understood. There is a need to enhance flexibility in solution design to allow new regulations to be factored in during rollout of subsequent release cycles.

What do RegTech providers need to do to improve their offerings in the coming year?

RegTech providers must ensure that their offerings are holistic, and must specify which risk typologies and taxonomies are being addressed, ensure that data flow and metrics and reporting modules are robust, and utilize more sophisticated analytics approaches to address underlying risk and operational issues. Hiring domain experts to complement their strong technologist benches will also enable RegTech providers to develop meaningful and relevant solutions.
Incremental innovation and experimental developments in emerging areas such as Blockchain and
Natural Language Programming will also further develop providers’ minimum viable product and value proposition. Effective scalable solutions must be rolled out at the same time as well.

Why will you be speaking at Finance Edge’s RegTech Summit US, and what do you hope to get out of the event?

I look forward to engaging with like-minded industry peers, and discussing how we can collaborateand work together to move the industry forward.
The Finance Edge Team has designed a comprehensive Summit agenda, and assembled a speaker
panel comprising leading industry practitioners and RegTech vendors. This will definitely lead to
meaningful conversations for all participants!

E-musing … towards a new identity?

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The recent Equifax breach has prompted renewed speculation about a possible successor to Social Security numbers for personal identification in the US. Has the time finally arrived for a new – and more secure – form of digital identity?
A secure, universal identifier is intuitively appealing, but soon runs up against a couple of harsh realities. From a security point of view, repeated use of the same identity is a no-no. Regardless of the technical security underlying any solution, breaches can and will happen – probably as a result of human error. The more systems there are involving a single identity, the more likely a breach and the more devastating the consequences.

A widely-used digital identity also has substantial privacy drawbacks. The more different data sets are connected, the more we reveal about ourselves. With ever more powerful data mining and artificial intelligence, we are already revealing far more about ourselves than perhaps we should.
So should we rule out the idea of a single identity in favour of separate identities and verification systems for each organisation we interact with? While security and privacy suggest we should, experience hints otherwise.
From the individual’s point of view, a single identity is hugely convenient. Maintaining security with multiple identities has always proven problematic. The temptation to reuse or write down passwords is almost overwhelming. And for those who follow current best practice by using a password manager, doesn’t that create a single point of failure?
Equally, while many will talk the talk on privacy, experience suggests that consumers are quite happy to sacrifice privacy for convenience.
From the point of view of digital identity provider, creating a widely-used digital identity is an exciting opportunity. For governments, it has the potential to boost efficiency (and to exert increased control over the citizens in regimes that lean that way). For banks, perhaps digital identity offers a way to regain a measure of control to offset the disruption of Fintechs and open data? Meanwhile tech companies such as Facebook have already shown the huge financial value that is on offer.
So, security experts and privacy advocates have good reasons to worry about any kind of universal identity. But consumers, and the organisations they deal with, have already shown their preference. Which side will win out? And will it be governments, bankers or tech companies that have the muscle – and the trust – to create the digital identity standards of the future?

ID & KYC Summit US
November 7, 2017. New York

Finance Edge’s next ID & KYC Summit US will be held in New York on Nov 7 – bringing you the best minds in KYC, AML, CDD and client onboarding
Contact us to secure your place

Top interview tips for Risk and Compliance jobs

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Edward Manson, Director at MERJE recruitment consultancy, discusses his five top tips when being interviewed for a Risk or Compliance role.

Preparation is key

“What can you tell us about the company?” is a question that comes up frequently in interviews. You won’t be expected to know everything about the organisation that you have applied to work for, but it could reflect very poorly on you if you are unable show a basic understanding of what the company does. Make sure you’ve had a thorough read through of the company’s website in detail, including the About Us section. Showing that you have read up on the company, including its history and recent news, exhibits a willingness to understand the company’s strategies, culture and values, and will hopefully stop any awkward silences when they ask you about the firm. Use your recruitment contact to also assist you with knowledge around the team, product development and focus and structure of the firm. We always share information and insider knowledge we have through the connections we have.

And don’t forget to brush up on the latest regulatory news and legislative reforms. There may be something which has been recently reported on that could have an impact on the company, so showing some knowledge of wider compliance issues will position you strongly.

Study the job spec and think of the wider context outside of the role

It also makes sense to fully get a grasp of the role. You should have been given a detailed job spec that gives an idea of the specific responsibilities and where it fits within the wider structure of the business. Read through it carefully and try to find examples of your skills and experience that match the points within the job spec. Risk and Compliance roles can be very technical, so making sure you have examples of your specific technical experience pre-prepared can relieve the pressure of trying to remember them when in the room.

Think of the different skills and behaviours that this specific role will need for someone to succeed and research them further. Have they produced any reports which includes their Key Risk Indicators? Do you know anyone that works there that can give you some insight to their Compliance or Conduct Risk framework? Can you highlight some issues that the Risk team may be facing or will be in the future? Placing the specifics of the role in to a wider Risk or Compliance context may well give you the edge in an interview, so make use of search engines, reports, magazines and journals to stay up-to-date. Also consider who you know that works at the firm or used to work at the firm and could give at least some information.

Knowing your interviewer could give a hint as to what to expect

At MERJE we always try to provide as much information on the background of the interviewers as we can prior to the interview. This is so that our Candidates can use resources like LinkedIn to research them beforehand. Finding out their job title and how long they have been at the company can help with preparation – for instance if you are applying for a Risk Manager role and the Head of Risk is interviewing you, you might want to spend time beforehand considering the functions of the Risk team as this may well be a talking point, whereas if you are meeting an MD or HR team member there may be more of a focus on the company as a whole.

Don’t be afraid to ask questions

Risk and Compliance roles deal with complex situations so highlighting that you are not afraid to find out more on a subject in order to fully understand it may well work in your favour. So as part of your preparation try to come up with five questions to fill in any gaps you have. Maybe you can ask about how your time will be split between certain responsibilities, what IT platforms they use, what the team structure is, how different offices work together, or how they see the role evolving over time. Are there any new frameworks or legislation which you’ve read about in your preparation that might have an impact on the team?

Asking questions shows that you want to know more about the role and its place within the company, but try to steer clear of negative ones, such as why the previous holder of the role is leaving, or asking too many so the focus doesn’t switch from you.

Be yourself

The expectations of a Compliance & Risk specialist have changed significantly over the years – as the roles in these areas started out, they were more of a box-ticking exercise, and however they have developed into much more of an engagement/advisory type remit. Therefore, interviewers want to see your personal traits come through during the interview. Personality now comes to the forefront as the teams are expected to deal with many other areas throughout the business. You will need to show your personality during the interview to prove that you can not only do the tasks that make up the role, but also work well with others.

As such, the interviewer will want to know that YOU are right for the role. As a recruiter in the Risk and Compliance area, it’s not just the bullet points on the CV we pay attention to, it’s also the Candidate themselves. This cultural fit is just as important (if not more so) when placing Candidates these days – a failure to match the right person to the right company could lead to issues down the road. We need to be confident that their personality and approach to work will slot in well with the potential firm.

This is why you should be yourself when you are being interviewed. Stay professional, but also open and approachable so the interviewers can be certain that you are a good choice. It may just give the edge over equally skilled Candidates who may not have the desired personality fit.

MERJE is a niche recruitment firm focusing on the areas of Risk Management, Compliance, Financial Crime & Fraud, Finance, and Customer Contact, and dedicated to the Financial Services sector. Whether you are looking to make a key hire into your team, or possibly planning your own next career move, MERJE are well placed to support on both permanent and interim search solutions.

MERJE sponsored the Conduct Risk Summit on 13th September 2017. For more information on how they can help with your recruitment needs contact Edward Manson or Kirstie Burn.


Speaker interview: Sarah Clark

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Mitek Systems

Sarah Clark, General Manager, Mitek Systems.

A year or so after ‘RegTech’ became a buzz word in financial services, what are the key enablers and barriers to its adoption?


The biggest barrier we normally run into is the fact that many of the regulations are not prescriptive in terms of the solutions that are considered adequate. This lack of definition oftentimes results into a generalized hesitancy to do something new until it’s known more broadly to be accepted by regulators. But it is imperative for FIs to be on the leading edge if they want to reap the benefit of topline growth. The key takeaway is that initial tests from top banks have happened, they have succeeded, and as a business, they are expanding and using our solutions for that expansion. Willing to take risks and go with more efficient, superior solutions, more quickly, is a huge differentiator for financial institutions, especially when it comes to adding value by optimizing customer acquisition and onboarding.


Additionally, financial services providers normally perceive budget as one of the main barriers to RegTech adoption. The reality is that, if you look at the astronomical investment that financial institutions need to make to be in compliance, utilizing RegTech solutions should result into net efficiencies instead of added costs. In other words, despite being perceived as a barrier, investing in RegTech solutions actually generates a positive outcome.


How should RegTech providers, FIs and regulators be working together to create holistic solutions? How can collaboration programs work, in practice?


At Mitek we firmly believe that collaboration is the cornerstone of success. RegTech should ultimately be leveraged to reduce compliance costs for financial firms while allowing regulators to better ensure compliance and successfully achieve their policy goals. The rapid pace at which regulation change and extend their scope presents an important source of struggles for regulatory bodies, as it keeps getting more difficult for them to keep up with their mandates. Fostering collaboration will not only be beneficial for both RegTech providers and financial institutions, but also for regulators, as open communication and collaboration should be utilized to assess and improve current little contextualized and articulated regulations, which come with huge effort and cost and that hardly help achieve the desired outcomes.


We are also starting to see a willingness to consume more cloud services in order to accelerate innovation through smarter data sharing. There is a growing number of our customers willing to share more data with us so we can help them better achieve their goals. Collaboration is paramount to accelerate innovation and service consumers more efficiently. Take Mitek as an example; we’re specialists in handling PII and identity documents and our customers know that, trusting us with this piece of the puzzle so they can focus on their key business and strategic priorities. We are starting to notice a change of trend towards a greater trust between FIs and RegTech providers; a shift of paradigm from customers-vendors to partners.  Creating this type of relationship accelerates innovation and boosts FIs’ ability to serve their customers more efficiently.


Which regulations are stopping innovative products and services from being brought to market? How can RegTech help firms to overcome this?


I see regulations as catalysts rather than deterrents for innovation. Regulations encourage institutions and their RegTech providers to find ways to ensure compliance is met, but also to deliver better user experiences, more automation, and more accurate and better outcomes for consumers. Regulations present both challenges and opportunities. Take the latest European Anti-Money Laundering Directive (AMLD4) for example, which increases the required frequency and scope of essential Know Your Customer (KYC) checks performed by banks and other financial institutions, resulting in further inflated operational costs.


On the other hand, the amended AMLD4 suggests using government-backed eID schemes, such as GOV.UK Verify, to improve KYC processes. Nevertheless, as most eID schemes are not expected to be ready for some time, this same piece of regulation recommends advanced mobile technology to bridge the gap. And there is where RegTech can move the needle for financial institutions. Financial services providers that partner with RegTech firms to replace inefficient, manual, prone-to-error status quo KYC checks, with cost-efficient, advanced automated solutions such as digital identity verification, can save about £47 million a year while meeting today consumer’s demands for speed, security and convenience.


Which key regulatory compliance challenges would you most like to see being tackled by RegTech providers?


We have reached a tipping point where it’s no longer feasible for banks to keep up with this increasing volume of regulations through manual, very inefficient, and very expensive processes which don’t meet expectations for seamless user journeys. The rise of RegTech is definitely related to the rapid growth of new regulations. The flipping side is that regulatory technology such as ID document verification has really become mature. At Mitek we specialize in leveraging the latest biometrics, deep learning, and AI to solve for identity verification in the digital channel, satisfying that increasing demand to comply with ever-stringent regulations at scale through user friendly, secure cloud platforms and APIs.


Good news is that some important steps have been already taken. In Europe, the upcoming PSD2 will drive more opportunities for collaboration, as its laser-focused at improving the quality of service provided by payments companies and financial institutions by means of more, closer, and more extensive collaboration among regulators, traditional institutions, industry disruptors and technology providers.


What are the most important characteristics you look for in a new RegTech solution?


Based on our experience with top global financial organizations, it is important to engage with a RegTech provider that is proven and has already been successful. For example, we’re live with one of the top 3 banks in the UK, as well as with the leading banks in The Netherlands. In our experience, banks and other financial services providers tend to start by applying RegTech solutions such as Mitek’s to a given product or account type, normally through one of their subsidiaries. Once they are live, have tested the new technology and seen the first results, then they would extend that technology to other product ranges. Financial institutions need partners they can trust; they need RegTech vendors that are willing to keep a steady stream of engagement with their team, that offers a robust Customer Success program.


Why will you be speaking at ECN’s RegTech Summit Europe, and what do you hope to get out of the event?


The financial services industry is going through a very interesting period of time, defined by  exciting technology innovations and new regulatory trends. At a time where RegTech is reaching a tipping point, the agenda of RegTech Summit US goes deep into some of the most compelling trends such as the need of further collaboration between financial institutions and RegTech vendors or the growing demand for more defined regulations that provide prescriptive guidance about adequate and sufficient regulatory technology solutions. solutions regulation solutions vendors. Personally, I’m looking forward to having the opportunity to discuss current challenges and opportunities with peers and to spend time with some of our top customers, learning how we can continue to expand our product offerings to further meet their needs.”

Speaker interview: Dean Nash

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Dean Nash, Head of Legal & Compliance, Monzo Bank

What are the 3 biggest challenges for in-house teams in FS firms today?

From my perspective it is first the speed of technological change in financial services; this means legal teams needing to know how the technology works, speak the language of their stakeholders (increasingly more likely to be a software developer than a business manager) and operate their way by redefining their engagement to work with agile development teams. This can be a real challenge for legal teams, but when it is done well can be hugely powerful.
Second is the rate of regulatory change in financial services. The regulators have been very active in all areas, from consumer protection to facilitating innovation and market stability. These create far reaching and complicated pieces of regulation that have massive impacts on virtually every financial services firm. The legal team need to scope, interpret, raise resource for, and oversee implementation of these huge projects – at a time when the legal foundation for many of these pieces of regulation is under question by Brexit.
Third is demonstrating value. Every other part of the business is automating as many processes as possible, and with so much regulation and legislation available at the touch of a button, the challenge of demonstrating value can be a real challenge. I think lawyers have a critical and unique role to play in business success, but demonstrating that beyond a vague concept of ‘trusted advisor’ is a real challenge.

What key steps can legal teams take, to create a higher value proposition for the business and for customers?

The key is to look to colleagues around the rest of the organisation and adopt the best practices being utilised across the organisation. I woke very closely with our risk team to ensure that legal risk is managed in a smart and risk-based way. I view legal risk in quite a simple way as coming down to two things: 1. The risk that we can’t enforce our rights as we would like to, or 2. We have breached a law and will be punished one way or another. Lawyers need to really understand – genuinely – what is your company’s risk appetite for these things? Are there other solutions to these risks aside from legal solutions? What are the processes and controls we need in place to manage these risks? How can you ensure these processes work with the business objectives and not against them?

What hurdles do legal teams face, in terms of implementing and delivering value from new technology solutions? How can these be overcome?

To answer this I think you need a really honest appraisal of the technology solutions you currently use and the value you add with that technology. What technology solution improvement would bring the largest value-add to the business for the least disruption? How does the cost / benefit analysis of this stack up against other ‘value-add’ initiatives such as stratifying or functionalising legal services? The simplest and biggest value-add I’ve experienced has come from investment in better communication, collaboration and management tools: basically, better hardware and software.

How do you view the current level of interaction / collaboration between in-house teams across the FS industry, and how could this develop in the future?

I think the industry is doing a great job of collaborating across some of the unique issues that we face as ‘fintechs’. Whether that is as a learning environment to understand early stage fundraising mechanics, or to share concerns about regulatory changes that may increase barriers to entry into financial services. The community is setting our sights around some of the pain points that we all feel, and seeing if we can (disruptively) propose collaborative solutions to common problems. First up – the dreaded NDA. We’d love to agree an industry standard and save everyone a lot of frustrating back and forth at the outset of an exciting business collaboration.

Which pain points for in-house teams most lend themselves to automation, and which pain points will be the most difficult for technology to fix?

I don’t think lawyers are best placed to answer that question to be honest. We are too likely to see the services we provide through the prism of our own training and biases. Legal teams will always have a critical role to play at a high level strategic level. For example, how upcoming regulation shapes business strategy, or which court to have a particular case heard in, or overall risk appetite given business. And doubtlessly lower, more repeatable tasks will be lost to either standardisation or automation. However, to make this happen, legal teams need to absorb developers and engineers into their teams and ask ‘what code could you write to replace the work I do?’

Why will you be speaking at Finance Edge’s Next Generation In-House Summit, and what do you hope to get out of the event?

As a bank that is less than two years old we have the luxury of being able to approach customer problems, business problems and indeed legal problems as an entirely greenfield project. This means digging back to first principles as to why we should design something in a particular way. For example, why should a lawyer review a contract before it is signed? Why should we protect our intellectual property? Why should we have terms and conditions for our products? Getting right back to the why and the first principles of these things has meant the way we approach our designs to these problems and the use of technology in those designs has been a fascinating process for me – and I would like to share this others. I am also keen to learn how other firms are approaching the question of technology in their organisations and see if there is any best practice I can take back to Monzo.

Speaker interview: Stephan Wolf

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Stephan Wolf, CEO of the Global Legal Entity Identifier Foundation (GLEIF).

What obligations relevant to the Legal Entity Identifier (LEI) are triggered by the forthcoming MiFID II / MiFIR?

Market participants that must comply with the forthcoming European Union (EU) revised Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) should obtain an LEI as soon as possible. Failure to obtain an LEI (by the firm or its client) in time will prevent firms from being able to comply with the reporting requirements applicable in the EU as of 3 January 2018.
With regard to transaction reporting under MiFIR, the European Securities and Markets Authority (ESMA) has clarified that investment firms should obtain LEIs from their clients before providing services which would trigger reporting obligations in respect of transactions carried out on behalf of those clients.
ESMA has also confirmed to GLEIF that compliance with MiFIR requires investment firms to maintain its own LEI duly renewed. This means that the reference data, i.e. the publicly available information on legal entities identifiable with an LEI, is re-validated annually by the managing LEI issuer against a third-party source. An investment firm should therefore ensure that its LEI is renewed by the date stated with its LEI record.

How can market participants globally, who trade in the EU, ensure they meet compliance requirements related to LEI established with MiFID II / MiFIR?

The MiFID II / MiFIR implementing legislative acts require a significant number of actors – located within as well as outside of the EU – to obtain an LEI that are under no such obligation to date.
To further streamline the issuance of LEIs, GLEIF has introduced the concept of the ‘Registration Agent’, which allows organisations to help their clients to access the network of LEI issuing organisations. The Registration Agent’s role in the Global LEI System is directly connected to the LEI issuing organisation. LEI issuers – also referenced as Local Operating Units – supply registration, renewal and other services, and act as the primary interface for legal entities wishing to obtain an LEI. The Registration Agent may choose to partner with one or more LEI issuing organisations to ensure its clients’ needs for LEI services are met. The LEI issuers are standing ready to assist legal entities to obtain an LEI as well as to collaborate with firms interested in acting as a Registration Agent.

How can accessing the LEI data pool aid and simplify regulatory reporting?

Following the financial crisis, the goal of the drivers of the LEI initiative – the Group of 20, the Financial Stability Board and many regulators around the world – was to use the LEI to create transparency in the derivatives markets.
As demonstrated with the current LEI population, these efforts have generated excellent results. At the end of June 2017, some 520,000 LEIs were assigned to legal entities active, primarily, in the derivatives markets. Most of these entities are based in the US and EU where regulations require the use of LEIs to uniquely identify counterparties to transactions in regulatory reporting. Public authorities in these jurisdictions rely on the LEI to evaluate risk, take corrective steps and, if required, minimise market abuse and improve the accuracy of financial data.

Do you see benefits arising from having an LEI beyond complying with regulatory reporting requirements?

Yes. We invite market participants to think beyond compliance and consider the business case for obtaining an LEI. Organisations across the globe not only need to keep on the right side of the regulators, but also need to be able to make smarter, less costly and more reliable decisions about who to do business with.
The trouble is that up until now, legal entity reference data has been proprietary, siloed and non-standardised. The good news is, there is a solution and progress towards unlocking it is already well under-way. It exists in the form of the Global LEI Index. This is the only online source, made available by GLEIF, that provides open, standardised and high quality entity reference data with the potential to capture any entity engaging in financial transactions globally.
Once fully deployed by market participants, using the LEI data pool will empower organisations across the board to simplify and accelerate operations and gain deeper insight into the global market place. If your counterparts – corporate customers, providers and other business partners – could all be uniquely, easily and speedily identified with the LEI, that would provide you with cost benefits and new business opportunities. Accessing and using the LEI data pool could support a multitude of applications in, for example, risk management, compliance and client relationship management.
The benefits generated for the wider business community by the Global LEI Index grow in line with the rate of LEI adoption.
So, our message to businesses around the globe is this: Get an LEI and make it work for you.

Why will you be speaking at ECN’s RegTech Summit Europe, and what do you hope to get out of the event?

I very much look forward to meeting and speaking with industry representatives spearheading initiatives designed to ensure regulatory compliance based on innovative applications that will ultimately help creating more transparent markets.

Speaker interview: John Byrne

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John Byrne, CEO at Corlytics

A year or so after ‘RegTech’ became a buzz word in financial services, what are the key enablers and barriers to its adoption?

Although RegTech has only just become a buzz word, financial institutions are long used to using regulatory technology. The difference with the current buzz around RegTech is the opportunities that regulated firms and regulators perceive RegTech to bring.
The key enablers to RegTech are the myriad of problems that organisations face with overwhelming regulatory complexity and uneven, overlapping regulatory timeframes. Regulated firms need help with making the complex simple. Also, the gap between regulatory intent of regulators and interpretation of these regulations provides an opportunity for providers to bridge the gap.
The key barriers to adoption of RegTech are multi-fold. Firstly, there is a lot of noise in the market which makes the buying process for regulated firms difficult. Many RegTech vendors, even though they have a good idea, do not properly understand the problems faced by regulated firms. Long sales cycles and procurement processes mean that RegTech firms needs to be focussed and funded or risk going out of business before their technology is adopted.

How should RegTech providers, FIs and regulators be working together to create holistic solutions? How can collaboration programs work, in practice.

RegTech providers, FIs and regulators should be working together to make regulatory intent – the actual regulations – clear, understandable and implementable, so that they are properly interpreted.
At Corlytics, we use our multi-layered regulatory taxonomy in the major global regulators to create intelligent handbooks that are fully taxonomised. We also extract intelligence from regulatory enforcements, enabling financial institutions to understand at a regulatory category, product/service line, regulator, jurisdiction and control level why enforcements are levied on a global basis.
This means that we can accurately map regulatory intent from handbooks right through to interpretation failings so that FIs can address these failings.
This collaborative process means that we can work on better regulatory outcomes for everyone.
The MiFID II / MiFIR implementing legislative acts require a significant number of actors – located within as well as outside of the EU – to obtain an LEI that are under no such obligation to date.

Which regulations are stopping innovative products and services from being brought to market? How can RegTech help firms to overcome this?

I don’t look at regulations as being a barrier to innovation. Quite the opposite, I believe that regulations are put in place to try to protect consumers, customers, the financial services system and ultimately global economies. To this end, RegTech firms can help organisations to drive down the ever-escalating cost of regulatory compliance – we know it’s on the increase year on year. Not only that, by accurately measuring regulatory risk, RegTech firms like Corlytics can help organisations to impact the bottom line by moving regulatory and legal provisions from the balance sheet back into the business to be invested in core products and services.
RegTech can provide a competitive advantage to FIs who properly embrace the capabilities it brings.

Which key regulatory compliance challenges would you most like to see being tackled by RegTech providers?

The biggest challenges that I would like to see RegTech providers help solve are as follows:
  • Measuring Regulatory Risk using a data driven approach. Current approaches to measuring regulatory risk do not provide the same rigour as monitoring market risk or credit risk. FIs need help with using a data driven approach to properly understanding their exposure
  • Enable FIs to more easily understand regulatory obligations across the
  • Provide a mechanism for collaboration between regulators and financial institutions.

What are the most important characteristics you look for in a new RegTech solution?

A new RegTech solution must tackle a real problem that exists within a financial institution, that is either impossible or difficult to solve. Ideally, a RegTech vendor should validate the solution with someone who has experienced the pain of regulatory compliance (e.g. a Chief Compliance Officer etc).
It must provide an immediate impact to the customer, preferably in terms of ROI. It must be simple to use, loved by its customers and be capable of being used immediately after purchase (not waiting 2 years for a roadmap to deliver).
As with all solutions, there must be a set of customers that are willing to pay for the new RegTech solution.

Why will you be speaking at ECN’s RegTech Summit US, and what do you hope to get out of the event

There are a lot of RegTech vendors in the market. There are a lot of RegTech events to attend.
ECN’s RegTech Summit US has a reputation for delivering quality insights – providing regulators, FIs and RegTech vendors with an ability to cut through the noise in the market. I am honoured to be part of that conversation.
From this event, I hope to connect with and hear from like-minded individuals and organisations who see the value that RegTech can bring to Financial Services industry.

Speaker interview: Dr Solomon Osagie

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Dr Solomon Osagie, Chief Legal Counsel at TSYS International

What are the 3 biggest challenges for in-house teams in FS firms today?

In no particular order, I suspect that most General Counsel will consider that a constantly evolving regulatory environment poses a challenge. Whether one considers BAU or M&A activity, there are pressures to keep businesses compliant. For UK businesses, uncertainty about the regulatory impact of Brexit and how the process will evolve adds to the challenge. Many lawyers will also be mindful of financial pressures. Some of us have advocated over the years for legal teams to be more integrated into the business, but this brings with it the reality that legal teams have to operate under financial pressure and deliver services that are not necessarily revenue generating. One last challenge will be the implementation of the new data protection legislation, the GDPR.

What key steps can legal teams take to create a higher value proposition?

Early engagement with product teams, which helps lawyers to understand the value proposition better. It is unfortunate when transactional lawyers are unaware of the technical specifications of a solution, and they offer legal solutions which impede rather than facilitate the objectives. I have also suggested that lawyers consider taking on non-traditional roles like CSR to help push boundaries. They can demonstrate value in non-monetary ways. Thirdly, we should consider how to offer advice that is practical and innovative with an eye on the commercial objective.

What main hurdles do legal teams face, in terms of implementing and delivering value from new technology solutions? How can these be overcome?

Whilst new technology solutions can offer returns for a company, the risk exposure is greatly increased. This opportunity must be balanced against risks, and legal teams need to be forward in explaining this. Thereafter risk should be spread/mitigated where possible.
If the business is buying or creating new technology, the legal team will need to ensure the business has all the required rights to use the technology effectively. What IP rights are involved, does the business own them, who owns the output? Is the new technology owned under a license? Is the license broad enough to cover all activities that the business has in mind? We should also consider that there are adequate liability caps to reflect actual risk rather than contract value. Penalties for breaches of data protection law, for example, can far outweigh contract consideration.
Early engagement and a clear understanding of the business’ objectives is key. Understanding the product and the implications for any particular asset contained therein, e.g. data, IP etc., and how the product will be used by customers.

How do you view the current level of collaboration between in-house teams across the FS industry, and how could this develop in the future?

The FS industry is diverse, with many lawyers working in niche areas. There are some areas of commonality (such as implementation of new laws) but often the drivers and risks are different from business to business. The dominant position of the banks within the sector does mean that to an extent a bank’s approach to regulation and risk will flow down through supply chains. Collaboration via a cross-pollination of ideas around regulatory compliance, risk mitigation and alternative structuring would be helpful.

Which pain points for in-house teams most lend themselves to automation, and which pain points will be the most difficult for technology to fix?

Automation could help with standard agreements such as NDAs. The issue with automation comes in the more complex contracts – this may not be just because the deal is of a high value, but because of the commercial construct and the products involved, where automation would not pick up on the nuances of such deals. This is where skilled negotiators with expert knowledge of their industry and related products will save time and help all parties to reduce risk. Automation/machine learning is useful for calculating some elements of remedy – e.g. SLAs, possibly liability caps, change control procedures. Similarly it may be possible to cover off some standard form agreements and translations. However, negotiations are ultimately a human interaction, which require give and take on issues that will not follow predetermined patterns.

Why will you be speaking at Finance Edge’s Next Generation In-House Summit, and what do you hope to get out of the event?

The summit will be a great opportunity for members of in-house legal teams within the FS sector to come together and discuss current issues, and form ideas that can help our industry move forward during a very complex regulatory and political period.

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