Posts Tagged ‘KYC’

Speaker Interview: Clare Rowley

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Clare Rowley, Head of Business Operations, GLEIF

The way we work has been revolutionised by technology. As part of this, the automation of many manual processes has led to considerable time and cost saving. However, despite these changes, many continue to use manual methods when it comes to legal entity identification.

The use of Legal Entity Identifiers (LEIs) as a common identifier to combat this issue has a wide range of business use cases that span multiple industries, business activities and functions. Clare Rowley, Head of Business Operations at the Global Legal Entity Identifier Foundation (GLEIF), talks to us about why current entity verification methods are not enough, and how the solution to the problem – LEIs – can not only help firms meet regulatory requirements, but create business value in multiple sectors.

How do LEIs work?


The LEI is a 20-digit alpha-numeric code based on the ISO 17442 standard developed by the International Organization for Standardization (ISO). It enables clear and unique identification of legal entities participating in financial transactions by connecting to key reference information. GLEIF makes available the Global LEI Index, which is the only global online source that provides open, standardized and high quality legal entity reference data. Each LEI contains information about an entity’s ownership structure and thus answers the questions of ‘who is who’ and ‘who owns whom’. As of February 2018, more than 1.1 million LEIs have been issued to legal entities globally.

The LEI data pool – which is publicly available – is essentially a global directory that enhances transparency in the marketplace.

Why are current entity verification processes not fit for purpose?


Current processes have significant manual components and often require the use of multiple databases in which a counterparty may be identified by a different name. Many banks and corporations still use names rather than identifiers, resulting in confusion. As an example, a large bank’s client services division recently found that it had an average of five names—with minor variations in its database—for the same organization. Additionally, commonly used databases, different divisions and IT systems within organizations can all have varying versions of the same entity’s name, making it harder to trace and to link information from multiple sources.

Another example of current inefficiencies is in know-your-customer (KYC) processes, where firms work to verify their clients’ identity by conducting robust due diligence. The lack of consistency and clarity within these processes means that banks spend considerable time and resources on what should be a simple task.

Beyond compliance and regulatory requirements, how can LEIs provide business value for companies?


Our recent white paper released with McKinsey & Company and titled ‘The Legal Entity Identifier: The Value of the Unique Counterparty ID’ identifies two broad areas in which the LEI has business value. Firstly, it reduces transactional and operational friction, both within and among organizations. Secondly, you can easily access important information about the background of a legal entity in a specific transaction. Together these benefits help organisations reduce the amount of time spent on identifying counterparties as well as improving information reliability.

How can LEIs create business value for the banking sector?


To give just one example: In capital markets, the LEI’s primary value is derived from reducing the cost of onboarding clients and middle- and back-office activities related to the processing of stocks, bonds and other securities trades. All such activities could be simplified and streamlined if LEI use was more broadly adopted throughout the lifecycle of the client relationship. The use of LEIs in the onboarding and trading phases of the client relationship would also reduce the time spent on data correction and reconciliation necessitated by inconsistent identification of legal entities.

McKinsey estimates that the use of LEIs in capital markets could reduce annual trade processing and onboarding costs by 10 percent. This would lead to a 3.5 percent reduction in overall trade processing and capital markets onboarding costs, amounting to over US$150 million in annual savings for the global investment banking industry alone.

What message do you have for businesses thinking about getting an LEI in the future?


Introducing the LEI into almost any process with a manual component that requires counterparty identification and verification can result in more reliable information, efficient operations, significant cost savings and a reduction in the time it takes to onboard clients. I would actively encourage organisations to consider the adoption of LEIs in their day to day processes.

Speaker Interview: Johannes Hennekeuser

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Johannes Hennekeuser, Head of Digitrans, IMTF

How close is the financial services industry to achieving standardisation in KYC and identity authentication processes?

  • In the area of ID authentication we see considerable progress towards standardisation. In many countries, the practice of video authentication is already accepted by the regulator and has been implemented by many banks
  • Initiatives towards a Digital Identification of every citizen have started in many countries and will ease the use of digital (self-) services; among first movers we see Aadhaar in India, and the SwissID in Switzerland.
  • Regarding KYC, requirements are getting more complex and laborious, making standardisation difficult due to differences among jurisdictions. The opportunities here are around automation. IMTF is able to automate processes and information searches successfully with the help of AI and semantic and linguistic technologies.
  • How can firms continue to deliver on their KYC and AML obligations within an increasingly demanding regulatory framework?

  • Only an agile setup that constantly and easily adapts to changes can cope with these requirements.
  • IMTF has built a modular and comprehensive platform that can easily be configured and deployed to increase the adaptability to changing regulations (IMTF RegTech Platform).
  • Banks are often using a variety of compliance systems that neither interact nor offer services (APIs). The IMTF RegTech Platform includes an integration layer that brings together vendor-specific APIs and file-based interfaces with rule logic and workflows.
  • What are the best ways firms can implement new technology to reduce KYC compliance costs while retaining customer loyalty?

    Banks are facing challenges here on all fronts, but a few new technologies can help to
    improve the end customer experience:

    Process Automation:

  • By automating manual work for screening and alert processing and replacing siloed solutions with an end2end vision regarding compliance and risk, your teams and systems can be aligned with your regulatory objectives.
  • Data remediation:

  • Create structured, usable data out of your existing low-quality, and unstructured information spread across multiple systems and documents based on an adequate Business Object model.
  • People:

  • Align, educate and equip staff to handle top-priority tasks where human expertise and decision-making is needed. Technologies such as collaboration tools and adaptive case managers help to ultimately improve the accuracy and efficiency of your people.
  • How can firms turn the compliance burden into competitive advantages?

  • While regulators force banks to increase documentation and background research, the additional data collected can also be used to enhance the customer experience and extend product sales.
  • In the IMTF RegTech Platform, we use advanced profiling to both improve fraud detection capabilities and allow a bank to learn more about its customers.
  • With ICOS/2 it’s possible to do segmentation and peer group comparisons, making it easy to target processes, actual customer requirements and identify opportunities for additional product offerings.
  • A fully digitalized onboarding process with self-service features ultimately improves the bank’s image and reputation.
  • How can firms most effectively limit client impact when complying with the KYC refresh process?

  • Banks are required to collect more data and do background checks, so theoretically this would require additional customer questions and documentation. But, by using certain automation technologies, many of these steps can intelligently be done in the background with little customer impact.
  • IMTF offers a Semantic Search feature that is initiated automatically once an enhanced due diligence is required. Seconds later, it delivers targeted content from commercial lists and the web with guaranteed accuracy and compliance, enabled for use anywhere.
  • Case Managers are extremely flexible and support both routine processes and ad-hoc activities. BPM systems don’t have the flexibility to break out of the pre-defined flows and need to run the customer through multiple loops, but our Case Manager allows you to adapt on the fly while also fulfilling regulatory requirements.
  • Why will you be speaking at Finance Edge’s KYC & AML Summit?


    We are excited to participate in lively discussions on what it takes to “reinvent and support” processes from identity authentication to KYC automation and enhanced due diligence. As a RegTech pioneer with 30 years in the market, we will be sharing our best practices for Client Lifecycle Management, KYC/EDD, and AML.

    Speaker Interview: Abe Smith

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    Abe Smith, Founder & CEO, Dealflo

    What is Dealflo’s role in helping financial services companies with the KYC process?

    Dealflo’s cloud-based solution allows financial services companies to fully digitise the transaction of customer agreements that carry risk, such as finance agreements, loans, mortgages, and life and pensions agreements.

    Dealflo’s technology helps financial services companies move from manual or semi-manual onboarding processes to fully automated processes, where a customer’s identity is verified digitally, and agreements are signed electronically. Agreements which are signed electronically require stronger evidence to confirm a person’s identity than would be required if an agreement was signed face-to-face. We give our clients access to various KYC methods to help them balance the need to provide a great customer experience, with the need to mitigate risk.

    How can firms continue to deliver on their KYC and AML obligations within an increasingly demanding regulatory framework?

    Looking at KYC in the context of a completely digital onboarding process, there’s a delta between the minimum you need to be compliant with regulations and what is advisable as best practice. Dealflo help enable our clients to be on the right side of that delta, whilst offering a frictionless experience to their customers. Financial services companies should be looking for KYC processes that assist with compliance and mitigate risk robustly.

    What are the best ways firms can implement new technology to reduce KYC compliance costs while retaining customer loyalty?

    There are a multiplicity of KYC and AML vendors out there, with fantastic technology that can help financial services companies reduce KYC compliance costs and retain customer loyalty. However, the problem many financial services face, is that they do not have the bandwidth or desire to do multiple integrations with multiple providers of KYC services. My advice to financial services companies would be to look for a flexible solution that offers access to multiple KYC methods, so that they can pick and choose KYC methods which are most appropriate for particular processes or products. This will enable them to optimise not just for cost, but risk and customer experience factors too.

    Dealflo has sourced leading technology to address the wide-ranging needs of financial services providers. This enables us to give clients access to the widest array of global identity and verification checks available, all through a single integration, single contract and single API. Dealflo’s clients can pick and choose the best identity checks for them – such as credit reference agency checks, or innovative new KYC methods such as automated document verification, biometrics, facial recognition, IP geolocation or mobile device identity.

    How close is the financial services industry to achieving standardisation in KYC and identity authentication processes?

    The industry is nowhere near a standardisation, nor should it be. Each financial transaction is different and carries a different amount of risk. When you consider factors such as the value of an agreement, the profile of the customer, the method by which the agreement is signed, the extent to which the product/service is regulated, and many more, you soon realise that there is no appropriate ‘one size fits all’ KYC method.

    The goal shouldn’t be a standardisation – it should be to create a flexible and configurable service that can accommodate all these variations and deliver the most appropriate KYC method for each. A ‘platform as a service’ approach allows financial services companies to achieve this.

    Why will you be speaking at Finance Edge’s KYC & AML Summit, and what are you most looking forward to at the event?

    KYC & AML have historically been considered as isolated compliance requirements to ‘get done’, instead of integral steps in a financial transaction. We want attendees to view KYC and AML as steps which produce evidence which is essential to establishing the veracity of an agreement. If identity evidence is integrated into a tamper-proof signed agreement, then that agreement is much stronger if challenged.

    We are attending the KYC & AML Summit to discuss these processes in the broader context of digital onboarding and to help spark new discussion to think about KYC and AML differently. I’m looking forward to discussing and establishing the role of KYC & AML in customer onboarding and seeing where the industry is headed next.


    KYC & AML Summit
    7 March 2018 London

    Abe Smith will be join us during the KYC & AML Summit. This high-level and interactive forum, will bring together senior-level professionals from all corners of the kyc & aml space.
    Contact us to secure your place

    Who can see your data? ☠

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    You’ve seen it: high-profile hacks have taken over the news. There’s so much that can be done with data gathered through KYC compliance, but you’re always looking at that dreaded data breach.

    We’ve asked our AML experts for their input on the best ways to prevent any sneak-peaks on client and company information:

    • Decentralise your data – Determine who needs access to what, and enforce it. Don’t give fraudsters an easy grab.
    • Give your clients control of their own information – If they can decide what to do with their information, you won’t be risking open access to any data lakes (or swamps!)
    • Move towards a real-time transaction monitoring model – Catch fraudulent transactions while they happen. Build this into your long-term strategy to stop them before they can disappear.

    None of these will be a one-size-fits-all strategy, but these are all important steps to take in building out your defences.

    If you want to help shape fraud prevention and data privacy strategies, join us at the KYC & AML Summit on 7 March in London. This event will bring top FS executives together to discuss how they are overcoming their biggest AML challenges today.

    Visit the website | See speakers confirmed

    Super Early Bird! Book by 22 December to pay only £599*

    Contact our customer service team on +44 (0)20 3397 7458 or email us on info@eventcreationetwork.com

    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!

    Speaker interview: John Byrne

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    Corlytics

    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: 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: Stephan Wolf

    Posted by

    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: Eavan Garvey

    Posted by

    Eavan Garvey, Head of Group Conduct Risk, Bank of Ireland.

    How is the work to improve conduct and culture impacting financial services firms?

    Reduced cost from conduct risk that has crystallised. The cost of conduct issues is significant; while the actual amount of remediation and the enforcement penalties are likely to account for the bulk of costs, other costs such as staff, printing, postage, buildings, etc can also be considerable.

    Customer retention. Where a firm has values that place the customer at the core, and where these values can be seen in everything the firm does from the development of new products, to how the products are advertised and the managing of complaints, thus demonstrating that the firm has the customer truly at its heart, the customer is more likely to have an increased confidence in the firm and is more likely to stay with the firm and avail of additional products or services provided by the firm.

    Positive reputational impact. Where the firm’s strategy is clear and where it can easily be seen how it fully aligns with the firm’s approach to customer outcomes. In addition to customers being more likely to stay, the firm has an improved relationship with third parties including regulators, policy makers, media, etc increases market confidence.

    Simplified product proposition. A truly customer centric firm will support a product proposition that is less complex, easier to understand, with terms that are not designed to create cumbersome conditions that are difficult to understand. Such a firm will also have systems that are likely to support the proper maintenance and servicing of products, and will instill confidence in the market as any likelihood of remediation is reduced or removed.

    Less complaints/errors. A firm is likely to have a reduced volume of complaints where conduct risk has been fully embedded. Similarly, where a firm is fully focused on embedding good conduct outcomes, the number of complaints being escalated to the ombudsman are likely to be reduced as the complaint outcome will be fully focused on what is in the best interest for the customer. Consequently, reputational risk will be reduced.

    Staff are more likely to be engaged as products are simpler to understand, easier to explain to customers, processes are less complicated and driven primarily by systems rather than manual intervention. Customers are happier with the product proposition and service, and are less likely to complain.

    Sustainable long term solutions. The firm’s strategy is more sustainable as it is focused on embedding long term sustainable solutions. Regulators are keen to understand that a firm’s strategic plans are fully aligned to customer values, thus ensuring that the strategy is more sustainable.

     

    What are the best ways to encourage staff to engage with the conduct agenda in their day-to-day activities?

    In addition to consumer protection, conduct risk can be described as a focus on the corporate culture and the ethical behaviour of employees and management in a firm. To successfully embed an ethical culture across a firm, conduct risk culture must first be supported and implemented by senior management and board members. Regulators have regularly linked the competence and ability of staff to some of the well-known remediation issues. Regulators are looking to firms to evidence the link between appropriate culture, adequate training and managing the risks that a firm’s particular business model represents.

    Training is a critically important element of the conduct risk framework. If staff do not understand what or how to embed good customer outcomes, in addition to why it is important to maintain the integrity of the market, behaviours will never change. With this in mind, and as training is particularly important, it is critical that this is right from the outset. Training should consider how to develop staff behaviours in addition to providing technical knowledge in relation to the various components of the conduct risk framework, in particular the conduct risk policies.


    What are the keys to delivering high quality products and services, and a great user experience, while maintaining a robust conduct agenda?

    “Provider firms will be expected to have robust procedures to assess their target market, perform adequate stress testing, and manage the product risks for consumers. We would expect the sorts of standards that consumers associate with basic vehicle safety or over‑the-counter medicines, for example, to be the norm for widely sold financial products. Firms should also consider making their own pre‑approval processes more transparent; the aim should be to increase the level of trust consumers have in financial products.” Martin Wheatley – Journey to the FCA

    When developing products firms should consider:

    • whether the product can meet customer needs
    • whether there are any unfair terms
    • whether documentation detailing the product is clear and easy to understand
    • whether the product is overly complex
    • who should be the target market
    • marketing and advertisements must describe the product or service in a clear, fair and not misleading way, to help the customer avoid poor purchase decisions

     

    How is the ever-increasing level of digitisation impacting conduct risk management?

    Regulators encourage innovation in the best interests of consumers. In particular, technology and product innovation can enhance competition and customer choice. There is however a need to focus on fair consumer outcomes, for example when considering provision of financial advice through on-line channels. Where firms are moving more to providing financial advice and recommendations through on-line channels they must ensure that the necessary protections are in place to deliver the right consumer outcomes. Firms must consider the following:

    • The appropriateness of selling all products online and whether certain more complex products should only be sold with an advisor.
    • How customers including more vulnerable customers are not financially excluded where the overall strategy is to move towards online platforms.
    • Consumers tend to focus on headline information when buying online, firms must ensure key information in relation to the features and risks is available and displayed in a manner easily identifiable and understood to all customers. Regulators refer to the ‘Framing’ effect which describes how different consumer choices can be made depending on how information is set out. Firms can present the same information in different ways and this can lead to different choices by consumers. For example, certain pieces of information may be more prominent on a web site then others resulting in certain biases being prompted. Firms can benefit from ‘framing’ where they have deliberately created complicated pricing structures, where key information is masked by including some irrelevant information or where the information can induce an emotional response.
    • Whether robust systems are in place to deliver a reliable service to customers. While technology does and will continue in the future to form a part of many firms’ growth and development strategies, firms will become more vulnerable due to dependencies on underlying systems, and the substantive operational risk this can cause. An over reliance on technology-based infrastructures can create additional risks from systems used outside financial markets such as mobile phone providers.

     

    What are the most powerful ways that firms can improve their conduct agendas (getting buy-in from staff / improving systems and processes / developing better risk models, etc.)?

    To improve the conduct agenda, it is critically important that firms get buy in from the board and staff. The firms board and senior management can be comfortable that the conduct risk strategy is robust and sustainable and that there are benefits to the firm:

    • from a business sense – it makes good business as the business model becomes sustainable with little customer complaints reduced cost as a result of less crystallised conduct risk, this is obviously a benefit to the firm as well as its shareholders;
    • from a moral and ethical sense – that firms do things because they should, not simply because they can.

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

    This is an area that I am hugely passionate about. I really believe that when firms are truly customer centric they will reap rewards not only in the context of customer satisfaction, but also in the behaviours and values espoused by staff and senior management across the firm. I believe this message and the meaning of conduct risk has been overly complicated over the last number of years, and I would like to show this is not such a complex risk, and that measures can be easily implemented to reduce the crystallisation of conduct risk issues.

    Speaker interview: Imtiaz Hussain

    Posted by

    Imtiaz Hussain, Head of Audit UK, Ireland, BNY Mellon.

    How is the work to improve conduct and culture impacting financial services firms?

    Doing what’s right has always been the expectation for financial institutions. The recent financial crisis reminded us that not all of us were doing right by our customers and other stakeholders, and poor conduct in financial services was blamed. The renewed focus on culture and conduct now means firms have to embed conduct risk in their existing risk management framework. Firms that seek to extract value out of conduct risk management are defining conduct risk strategy, establishing conduct risk appetite and developing appropriate metrics to ensure that conduct agenda is considered throughout the customer lifecycle. Equally, the board and senior management are becoming more vocal on the conduct topic and setting the tone for right conduct, culture and behaviour. In the UK, the Senior Managers Regime further heightened the urgency to ensure conduct risk management permeates throughout financial services institutions.

    What are the best ways to encourage staff to engage with the conduct agenda in their day-to-day activities?

    Setting the tone from the top is key, as employees can look up to set of values and behaviours expected from top management. Also, a safe environment for people to speak up and voice concerns, and even rewarding such behaviours, encourage proactive management of conduct risk. All employees should be encouraged to embrace and demonstrate the concept of good customer outcome. One way to make this concept go viral in an organisation is story telling. It is through story telling that employees can contextualise what good and bad look like.

    What are the keys to delivering high quality products and services, and a great user experience, while maintaining a robust conduct agenda?

    Delivering better client experience and conduct risk management complement each other. As I mentioned previously, the key to delighting customers and giving them better experiences is to put the customer at the centre of what firms do. From product development to marketing and selling, and then servicing clients, employees should be able to identify conduct risk in the value chain and mitigate any risks associated with conduct.

    How is the ever-increasing level of digitisation impacting conduct risk management?

    Digitisation is driving change in the financial services business model, but it is also changing customer behavior and transforming customer experience. Digitisation certainly has an impact on a firm’s conduct risk profile and it is vital for organisations to manage the risks associated with this impact. This is precisely the reason why a firm should strive to establish a robust and resilient conduct risk management framework that is understood and bought in by staff at all levels.

    What are the most powerful ways that firms can improve their conduct agendas?

    For me, the two most powerful catalysts for improving the conduct risk agenda are first story telling (so people at all levels understand and live and breathe the conduct agenda), and second empowering them with tools and methods for better management of conduct risk. These include training staff regularly on conduct, establishing a robust conduct risk management framework, and encouraging conduct risk dialogue by incorporating the conduct agenda into existing policies and procedures, etc. It is important to recognise that, whilst setting tone at the top is vital, tone in the middle and tone at the bottom is absolutely critical for bringing the conduct agenda to life. Embedding conduct risk management will require everybody in the firm.

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