IBM Watson Financial Services
Risk & Compliance Innovation Forum
Using Cognitive Computing to Streamline
Regulatory Compliance
Grace Brasington
London
24 May 2017
© 2016 IBM Corporation
Regulatory Compliance Challenges
300M
Pages
of regulation,
constantly
changing
$99B
Annual cost
to address
compliance
$100B+
Sanctions
and fines
A New Approach is Required
96
Source: CEB, Risk Management Survey, 2016
%
plan to make changes
to either their risk management
methodologies or the scope
and reach of their risk
management activities
Welcome to a New Era in Regulatory Change, Compliance,
and Risk
45
%
wish to spend less time
facilitating risk identification
and assessment and
more time supporting
risk monitoring and mitigation
Source: CEB, Risk Management Survey, 2016
IBM and Promontory
Financial Group intend
to transform regulatory
compliance with
cognitive solutions
and expertise in the
financial services industry
ibm.com/regulatorycompliance
Promontory’s deep expertise combined with IBM’s technology and
scalable delivery capabilities creates an unparalleled value proposition
for our clients
Deep regulatory expertise
and business process
experience
§
Comprehensive regulatory
knowledge and understanding
of regulator intentions
§
Experienced operations
leaders and subject matter
experts
§
Expertise on how to best
address regulatory obligations
§
Ability to reduce regulatory
burden through client specific
action plans
Financial Services
IBM + Promontory
Financial Group
End-to-End
Execution Capability
Regulatory compliance
solutions powered by scalable,
cognitive platforms
§
IBM Watson Solutions for
regulatory change management,
surveillance, KYC and AML
§
Cognitive technologies to
streamline and reduce costs of
compliance
§
Scalable platforms for delivering
enterprise grade systems and
capabilities
§
Large, global delivery capabilities
for integration and managed
services
Opportunities to Improve Regulatory Compliance
with Cognitive
Regulatory Change
Management
Know Your
Customer
Address constantly
changing regulations and
manage control
requirements more
effectively
Streamline customer due
diligence and remediation
activities
Anti-Money
Laundering
Enable more effective
identification and
investigation of
suspicious transactions
Misconduct Surveillance
Identify potential
misconduct more
effectively
Regulatory Compliance Analytics
A Cognitive Journey
1 Regulation
Ingestion
2
Obligation
Extraction
&Tagging
Control
3 Identification and
Mapping
/
4
5
Obligation &
Control Analysis
Risk & Control
Lifecycle
Management
Industryspecific
controls
Normalization
of Content
Company
policies
imports
•
Compliance Repository
•
Standard Taxonomy
•
Assessments/Tests
Commodity Futures Trading Commission
Financial Crimes Enforcement Network
Consumer Financial Protection Bureau
Financial Industry Regulatory Authority
•
KRIs/KPIs
Department of Justice
Municipal Securities Rulemaking Board
•
Risk Events/Incidents
Federal Deposit Insurance Corporation
National Futures Association
•
Policy Management
Federal Financial Institutions Examination
Council
Office of Foreign Assets Control
•
Issues & Actions
Federal Reserve Board
Office of the Comptroller of the Currency
Federal Trade Commission
Securities and Exchange Commission
•
Context to Extended
GRC Capabilities
•
Operational Controls
Regulatory Change Management Streamlines the Process
of Constantly Changing Requirements
Capture & Ingest
Regulatory Content
Identify
Potential
Obligations
Manage
Obligations
&
Applicability
New Requirement: Track, Analyze & Benchmark Regulation
Identify &
Map
Controls
Manage
Controls &
Assess
Risks
Existing Scope
Regulatory Compliance Analytics Overview
Identify&ManageRegulatoryObligations
Input regulations
for cognitive
processing
Step
Identify obligations
Classify & map
obligations
Analyze & report
2
Curate regulations to
be analysed by
Watson
Watson identifies
potential obligations,
analyst confirms validity
and adds comments
1 Regulation
Ingestion
2
Organize controls
based on jurisdiction,
line of business and
regulations
Obligation
Extraction
&Tagging
Holistic reporting to
monitor the current
compliance environment
and understand changes
in regulation
Control
3 Identification and
Mapping
Surveillance
Challenges with Surveillance
CONSTANTLY
CHANGING
market manipulation
techniques
SILOED APPROACH
not effective
INCREASING
EXPECTATIONS
set by regulators
100+
80%
72
scenarios identified,
growing in complexity
across assets and venues
alerts false positives, but
still missing some
misconduct
hrs to
respond to
investigations
End to End Process: Where does Cognitive apply?
1
2
3
4
Ingest Data
Apply Surveillance
Identify potential
misconduct
Investigate potential
misconduct
Transactions
Data Sources
View Alerts
Confirm
Understand
Behavior
Reject
Communications
External
Surveillance Insight: anticipate intent, don’t just detect
Data Management
Aggregatedatafromcore
systems,
§ Applyretention policies
§ Dataretainedaccordingto
reg.requirements&internal
policy
§
Nearreal-timesupervision
policiesappliedatfront
office
§ Endofdaysurveillance
modelsandalgorithms
appliedintheback office
§
PotentialMisconduct Alert
Review
PotentialMisconduct Alert
Generation
Surveillance Analytics
DataSource Ingestion
Generatealerts
§ Prioritizealertsbyrisk
§ Aggregateevidencefor
eachalert
§
Reviewalertsthrougha
casemanager
§ Confirmorrejectalerts
bydeterminingiffalse
positiveS
§ Escalateconfirmed
§
8
Opportunity to Transform with Cognitive
Go Beyond Rules
Proactive
Behavior
Take Holistic Approach
Machine Learning
Leverage behaviors and machine learning to
proactively identify abnormalities and potential
misconduct without pre-defined rules
eComms
Activity
Trade
Voice
Integrated analytics, focused on total
conduct across activities and channels. Provide
a 360o view for understanding Trader and
Employee behavior
URL: Understand, Reason and Learn
1
Surveillance Insight for Financial Services
Correlates across channels, applying cognitive & machine learning to proactively identify abnormalities and potential misconduct
Fuse insights to detect
suspicious activities
Transactions
External
Order
Trade
Execution
Reference
Email
Chat
Voice
Build employee profiles
with personality &
behavior traits
See alerts & investigations
from continuously updated
risk models
Surveilla
nce
Communications
View linkages with instant
drill-down & playbacks
News
Social
Reduced cost of employee
non-compliance & misconduct
Faster detection of
sophisticated scenarios
Risk based prioritization of alerts
and reduced false positives
Know Your Customer / Anti Money Laundering
Challenges with KYC & AML
EXTREMELY
MANUAL
PROCESSES
highly FTE-intensive
AML
COSTS
INCREASING
on average rate of
ALERT
OVERLOAD
from current systems
and processes
53%
1,000s
$10B
is the global spend
expectation in the next
couple years
33%
of respondents cite challenges
with data quality
10s of
thousands
of false positives and too
many alerts
FINES &
SANCTIONS
from failures to adhere to
compliance programs
and practices
1 in 5
have experienced
enforcement actions
Know Your Customer
Opportunities to Apply Cognitive
Initial
New Account
Application
Collect
Customer
Information
Customer
Due
Diligence
Second
Followon
Customer
Risk
Assessment
Onboarding
Decision
Review &
Refresh
Customer
Information
AML
Opportunities to Apply Cognitive
Initial
Initial
Transaction
Occurs
Alert
Identification
Transaction
Monitoring
Alert
Prioritization &
Triage
Second
Second
FollowFollowon
on
Research &
Investigation
AML Investigation
Disposition
Decision
SAR Filing
Regulatory
Reporting
Improving effectiveness & efficiencies
with alert prioritization and automation
Smarter Targeting
Chase
fewer bad
leads
Focus efforts
on likely vs.
unlikely risks
Better Intelligence
Improve
conversion
rates on all
alerts
Improve
conversion
on all cases
Make
better
decisions
Increase
throughput
Thank you