May 3, 2018 | Written by: David Marmer
Categorized: IBM RegTech Innovations
Share this post:
Today, IBM proudly accepted two distinguished RegTech Awards 2018 for our innovations within IBM Watson Regulatory Compliance:
- “Best AI Solution for Regulatory Compliance”
- “Best Regulatory Alert Management Solution”
We are thrilled to be recognized by both the readers and the Financial Institutional members of Intelligent Trading Technology and Data Management Review.
With these awards, what is most exciting is the recognition of the value we bring to clients in need of solutions for regulatory compliance and risk. Risk and Regulatory Compliance is emerging as a key, strategic area for financial institutions with significant, potential risks to reputation, valuation and sustainability.
The business challenge of demonstrating compliance
Despite the massive number of regulations introduced since the financial crisis of 2008, regulators still believe that banks have yet to put a sustainable system in place. In fact, according to studies, over $350B of fines have been levied since 2008. Regulators have found that banks do not have a full or accurate, timely view of their obligations. As a result, every element of compliance downstream from these obligations are error-prone and creating massive risks. Today, regulators are examining the banks regulatory obligations and the associated end-to-end responsibilities to ensure that there is a process and a system for sufficient and sustainable compliance.
The challenge that clients tell us they face is dealing not only with the rate and pace of changing regulations, but also the potential of missing in their business-as-usual processes because they are focused on larger regulations such as the Dodd Frank Act and the Volker Rule. Clients tell us they do not have a consistent, coordinated process between legal, compliance and risk or even between first and second lines of defense. Clients have shared with us that, as a result of regular reviews and internal tests for compliance, they are not fully confident in their ability to demonstrate end to end compliance across jurisdictions and business units. This is understandable. Organizations are forced to prioritize these activities as they execute routine audits, ad hoc requests for future investments planning, and try to control the growing cost of compliance.
It is not as if the banks are delinquent in efforts to address these gaps in their compliance processes. They have spent millions of dollars – estimated at between 5-15% of their revenues – on people, technology and regulatory change summaries to become more confident in their regulatory requirements and compliance processes. However, they feel they still have a long way to go.
There are many reasons why there have only been partial solutions to these problems. One key reason is the that most organizations have taken a siloed approach to implementing their GRC systems. Homegrown solutions, multiple software applications and different methodologies act as a barrier for seeing all compliance activity holistically. This decreases agility and increases the cost. Another reason is that organizations have tried to rely on alert systems that provide notifications of change events with a small summary of the change. The reality of these systems is an inundation of irrelevant alerts as the solutions do not consider the applicability of the change to the institution and are not able to be connected to the internal control environments directly. Therefore, these alerts often go ignored.
Transforming the Compliance Process
At IBM, we believe consistency and automation is needed to drive significantly improved productivity. We achieve this with a system that embeds the necessary content from regulation to control: IBM Watson Regulatory Compliance (WRC). WRC processes raw data from paper-based content and website pages into a searchable, canonical schema for cognitive & analytic processing that allows the system to assist clients in managing obligations. By leveraging a single channel of regulatory content, clients can enable an end-to-end process from obligations to controls where users can:
- Form obligations with the optional help of the Watson Obligations Assistant;
- Classify compliance & control information with system provided recommendations;
- Find answers easily using search and natural language; and
- Automatically direct relevant alerts to the appropriate personnel regarding regulatory change events.
WRC detects specific changes between versions of a regulation, triggering a notification and a review workflow that allows stakeholders to make the required updates and capture gaps in a governed, traceable process. There is significant value in automating their current manual processes and linking together silos of information, such as testing, that may already be automated. WRC automates processes to better support regulatory changes and the implementation/execution of the requirements with improved monitoring of the internal control environment to ensure better adherence. This leads to reduced penalties, cost avoidance of expensive resources, and improved efficiency through time savings.
IBM Watson Regulatory Compliance is an answer to our clients’ need to preserve their reputation, valuation and sustainability. We are now able to provide our clients with a solution that ensures a full understanding of regulatory obligations and the end to end responsibilities that are associated with them. We are eliminating siloes and ensuring that there is a holistic view into compliance activity. Clients are now able to receive alerts that matter. Receiving these two awards are not us crossing a finish line, but rather our first step in changing the risk and regulatory compliance industry. We are introducing a solution that utilizes the technology IBM is now known for in bringing our clients to the 21st century and beyond: Cognitive and analytical capabilities. We combine this with our expertise in risk and regulatory compliance and believe that we are the partners in the future to help our clients stay ahead of the regulators and ensure success, not just compliance, to their stakeholders.