Finance in Focus Podcast: The Future of #Regtech is Cognitive

Finance in Focus Podcast: The Future of #Regtech is Cognitive


Regulations have one overriding purpose: to make banks safe and strong for the benefit of both consumers and investors. Yet banks are spending more than $99 billion each year in their attempts to understand and abide by compliance requirements. Worse still, that figure doesn’t include costs incurred when banks suffer sanctions and fines.

In a constantly shifting sea of regulations, banks can be hard pressed to keep up. What’s more, many financial institutions have struggled in their attempts to use technology effectively when understanding compliance obligations and defining compliance controls.

Processing the regulatory environment

The process of identifying and understanding regulatory obligations has traditionally been a manual one. Not surprisingly, it has been error-prone and time-consuming. Organizations create whole teams as legal resources, bringing together consultants, paralegals and compliance experts to process towering stacks of papers and highlight potentially relevant sections before manually entering this information into spreadsheets.

In such an environment, much of the resulting compliance information is unstructured: Each regulator has a different way of expressing his or her understanding of what the bank must address. Thus, even this process creates the need for more effort, now devoted to understanding, learning and interpreting the meaning of compliance for the institution.

Amid all this chaos, banks have the opportunity to take charge of their understanding—and subsequent maintenance—of compliance. Using the cognitive computing capabilities offered by IBM Watson, firms can deepen their understanding of their organizational obligations. To help this happen, IBM is using existing regulatory documents to teach Watson. After ingesting the content of these documents, Watson can process bodies of regulations, identifying potential obligations of the bank.

As it does so, Watson tags those obligations by jurisdiction, line of business, product or service. For example, is a regulation specific to capital markets, derivatives, a particular kind of credit card or a certain type of mortgage? If so, then Watson passes that information on, allowing individual bank employees to identify the ways in which the tagged information is relevant to them.

IBM’s acquisition of Promontory is an important part of ensuring that Watson highlights the right things. Just as in the healthcare space IBM requested that doctors train Watson to diagnose cancer, IBM is taking an expert approach to regulatory compliance by harnessing the power of Promontory, a top-tier global banking consultancy that offers a large body of experts focused on regulation and compliance.

Using compliance as a stepping-stone to success

However, regulations are just one piece of the equation that drives compliance for banks. After they are published, regulations often see commentary, correction or adjustment. Accordingly, IBM has designed Watson to ingest draft regulations so you can get an advance look at what’s on the horizon, allowing you to prepare your organization—or perhaps even lobby for changes to regulations before they’re finalized.

When Watson tags regulations to associate them with various parts of your business, you can target individuals in your organization for alerts about new regulations or changes to existing regulations. Banks, like most other businesses, are not constant; rather, they’re always looking for ways of entering additional markets or creating new products. Accordingly, when you have access to a catalog of potential obligations, each connected to individual products and process areas across the organization, you can link these to the controls necessary for addressing these obligations. As you do so, you can create an inventory of controls that are linked back to the obligations they support. By analyzing this data, you can use Watson to boost your understanding of the rules that are relevant to a new product or market.

By taking advantage of cognitive computing capabilities, banks can enhance their ability to meet and exceed regulatory demands. As they do, they can learn from other banks’ experiences. All this helps provide consumers with the assurance that the bank is in a secure and defensible position no matter the vagaries of the regulatory environment. Banks, in turn, are free to pursue technological opportunities while creating additional products and stepping up their level of service to new heights.


Marc Andrews is vice president of Watson Financial Services solutions at IBM and is responsible for industry-specific IBM analytics solutions. He manages a group of industry-aligned teams that are driving the development and delivery of solutions designed to help organizations extract insights from the modern data explosion in support of their key business objectives. He meets with business and technology leaders from clients in multiple industries across the globe to share best practices and identify ways of taking advantage of emerging big data and analytics capabilities to drive the creation of business value. Follow Marc on Twitter @MarcAndrews.

April Rudin, an acclaimed financial services and wealth management marketing strategist, is founder of the Rudin Group. A digital and traditional media expert, she is noted for her ability to forecast, analyze and illuminate critical trends in the industry, which allows her to create campaigns that enhance brand and professional visibility. The Rudin Group, founded in 2008, designs bespoke marketing campaigns for some of the world’s most important wealth management and family office firms, focusing on digital strategy and multigenerational marketing. Follow April on Twitter @TheRudinGroup.

IBM Regulatory Compliance Analytics, with Watson, can help banks understand and address constantly changing regulations while cutting the costs they incur in doing so. To learn more, watch a demonstration of cognitive computing in action.