IBM is deploying sophisticated technology under its Watson Financial Services brand to improve risk management across financial firms.
The initiative has several components, said Michael Curry, vice president of engineering for Watson Financial Services at IBM.
Reflections in a window of the IBM Watson headquarters in New York. Photographer: Michael Nagle/Bloomberg
“One piece is more focused on financial risk — market, credit and liquidity risk that are associated with portfolios. The Armanta acquisition we announced a few months ago sits in portfolio management but we are applying it in other places too.
“The second piece would be more operational risk, and there you have two components. One is some of the areas of financial crimes and fraud where we have our Financial Crimes Insight Engine, a platform for finding patterns of fraud and market abuse. The next piece is more operational — risk, compliance, risk management — and how you manage all those risks. GRC (Governance, risk and compliance) tools have sat there and Open Pages fits into that. It is focused on how a company manages all of the different risks that are constantly barraging financial institutions.”
The IBM RegTech Portfolio can map new regulations, like Europe’s recently implemented data protection rules (GDPR), into a set of obligations that can be assigned to individuals or departments within a bank. It can also check to make sure rules, like encrypting all Protected Personal Information (PPI) that is at rest are followed. If/when GDPR 2 comes out, IBM’s Open Pages GRC application can understand the changes and manage adjustments in business activities, policy and jurisdictions, assign responsibility to individual owners and then test and audit the systems.
In the past GRC systems have been controlled by a small centralized group within a financial institution, Curry added, but now financial institutions are under pressure from regulators to extend GRC responsibility across the institution.
“They want to make regulatory oversight and operational risk something every employee does constantly by putting the tools in everybody’s hand and let every employee participate in risk management That creates a much better operational environment and will ultimately result in a higher level of compliance.”
That calls for simplifying the technology so nonspecialists can understand it, making employees across the organization the first line of defense for compliance and combating fraud.
An important part of GRC is Know You Customer (KYC) rules which requires screening new individual or corporate customers against watchlists and other data sources to see if they present any problems. IBM uses cognitive technology and machine learning to speed up the process.
“We pull together the information you need, assembling the data quickly across multiple data sources, to develop a risk profile.” One bank customer saw its KYC process drop from 15 minutes to 5 minutes using IBM’s technology, he added.
“We are providing cognitive technology, machine learning based technology, to redefine how regulatory compliance and RegTech in general work across financial risk, operational risk, financial crimes and regulatory compliance. Firms are spending too much time and too much money on regulations and that pulls away from their core focus on improving the customer experience.”