Blockchain is moving beyond proof of concept and into commercialisation, delegates at the Blockchain for Finance conference in Dublin heard.
The fact that the international conference, now in its third year and co-sponsored by Enterprise Ireland, chose to locate in Dublin for the second year in a row reflects the city’s growing role as a global blockchain hub.
The past three years have seen enormous changes in distributed ledger technology (DLT), said panellist Anthony Day, chief operating officer EMEA for Deloitte’s Blockchain Lab, which is also located in Dublin.
This is due, not just to growing awareness of the cryptocurrencies DLT supports, but the potentially even greater opportunities it offers to connect multiple parties, in a multiplicity of ways, across numerous sectors.
The value proposition of blockchain
In all, the focus is now on blockchain’s value proposition. “It’s probably the most common question we get asked,” said Day. “Most of the concepts have been proved to work” but “for those who have yet to take the leap however, the question they are asking is ‘What’s in it for me? What is the value proposition? What’s the business case for blockchain?’” he said.
A number of panellists were on hand to answer. Ireland’s Ulster Bank is involved in an interbank collaboration, looking at how it can use Ethereum to create an alternative payment network and can see the broad-based benefits.
“We can see the technology itself has real commercial value in it, predominately from a cost efficiencies perspective,” said JP McKenna, Head of Innovation at Ulster Bank. These include improving speed, reducing overhead, and reducing reconciliation.
“Increasing transparency around transactions can really help an organisation transform its cost base. We’ve seen that in a number of the proof of concepts we’ve looked at, whether it be around payments or regulatory reporting, and the efficiencies it can bring there,” said McKenna.
The bank has also been working with R3, a consortium-backed enterprise blockchain software firm working with a broad ecosystem of more than 200 members and partners across multiple industries.
It is the developer of Corda, an open-source blockchain platform that aims to remove costly friction in business transactions by enabling institutions to transact directly using smart contracts.
Together with TradeIX, a pioneer of open platform for trade finance, R3 has launched a project, called Marco Polo that is a joint undertaking with over a dozen of the world’s best known financial institutions active in trade finance, including BNP Paribas, Commerzbank, ING, and NatWest.
Why blockchain is ideal for trade processes
TradeIX is developing an end-to-end open account business network powered by the TIX platform and by Corda distributed ledger technology.
“There are a lot of processes in trade that are ideal for blockchain,” said Sophie Wiberg Holm, the Programme Manager at R3, who heads up Marco Polo.
As trade is inherently a decentralised ecosystem, using distributed ledger technology was something participants could already see the value in, she said, with the result that, “we didn’t have to put a very strong business case on it from the beginning.”
PeerNova, a Silicon Valley company that combines blockchain with big data and cloud technologies to create a data integrity application, is working with two of the largest banks in the world, said Raghu Rao, its VP for Business Development.
The company is currently working with a US bank’s treasury division, tracking the custodial movement of assets and corresponding payments. In doing so, it provides operational business intelligence as these assets flow through multiple systems.
“This is essentially a green field application, something they were never able to do before,” he said.
PeerNova is also working with a large European bank where the focus is on driving operational efficiencies in trade validation and reconciliation of internal databases. “There, the value proposition is a 10X efficiency they are able to achieve through this platform,” he said.
Business models for blockchain
A key challenge for DLT consortia such as Marco Polo, however, is ensuring people see not just the commercial value of the tech, but of working collaboratively to develop it.
“It has been about – how do you find a business model that allows for partners that are involved, like Microsoft and Oracle and the other tech providers – how do you build a model that incentivises them, that has a commercial model around it for them, and (yet) still encourages a-co creation and decentralised network,” said Wiberg Holm.
The focus now needs to be on ensuring the right governance and frameworks are in place for DLT, said McKenna, indicating that consortia like R3 help build trust. “The tech challenges have been, or are being, addressed. It’s about building the right frameworks around it so you can get on with it,” he said.
Beyond blockchain hype
For PeerNova, as a nimble fintech trying to get into large banks, part of the challenge gaining traction initially was blockchain “hype” in 2015, said Rao. At that stage, every bank had large innovation teams and a desire to do proofs of concept “for the sake of it,” he said.
As a result there were “lots of toy POCs running around, but the business groups weren’t involved, no business cases were being discussed.”
That has now changed. PeerNova’s more recent engagements include both operations and business teams, with a focus on offering “real-world applications that can provide value to the bank.”
Now it’s about developing solutions that can work at scale too, coping with both volume and velocity.
A residual challenge facing blockchain companies is banks’ traditional conservatism, however, which often translates into a desire to be a last mover, said Henri Dethier, Technology Solutions Professional at Microsoft. He also identified a need for banks to first address their legacy systems, another drag on the market.
Opportunities for blockchain extend far beyond financial services, however. Trade finance solutions alone are already giving rise to additional opportunities across sectors such as trade credit insurance, supply chain and procurement, said Wiberg Holm, pointing to BiTA, the Blockchain in Transport Alliance as a case in point.
This is opening up questions about whether, for example, in the future a tool used to verify events in transportation might also be used to verify transaction in capital markets. If so, it suggests additional potential for various industries to come in and play new roles for one another in future, she said.
That will result in nothing less than “a mindset shift”, said Day.
Enterprise Ireland, the trade and innovation agency, is one of the largest venture capital funders of tech start-ups in the world, and has been actively supporting blockchain development over the past year.
The agency provides both financial and development support to a number of blockchain companies, including Aid:Tech – an Irish start-up that uses blockchain technology to distribute international aid in refugee camps – a clear indicator of the importance being placed on the quickly emerging technology in the country that is also a global innovation hub.
How Enterprise Ireland supports blockchain development
“Our focus is primarily on investing in early stage start-ups. We are one of the largest VC firms, if you want to consider us like that, in the world. We’ve done 1600 investments in the last 20 years in Irish companies’ international expansion plans,” said Eoin Fitzgerald, senior development advisor for fintech at Enterprise Ireland.
Enterprise Ireland also supports companies in emerging technologies in other ways.
“In June, we announced a Competitive Start Fund, which is focused on early stage ideas but with a specific deep tech element to it, because we had seen the growth in the blockchain space,” said Fitzgerald.
“A lot of our work is engaging with either the sector itself, or the expertise, on behalf of our clients, whether in international markets, through events, or working with the likes of the Blockchain Ireland initiative and the Blockchain Expert Group, and being our clients’ representative at these,” fintech professionals at the Blockchain for Finance Conference, sponsored by Enterprise Ireland, heard.
Enterprise Ireland also delivers supports such as R&D grants and innovation partnerships, to help companies across sectors such as food, transportation, logistics and supply chain management, “where we see blockchain being a potentially disruptive technology,” he said.
Government support for blockchain ambitions
This drive that Ireland will play a leading role in blockchain comes from the top down. In March, Ireland’s Minister for Finance published a discussion paper on virtual currencies and blockchain technology. The Government also announced the creation of an internal working group to focus on the area, in recognition of the fact that blockchain technology has the potential to be a “catalyst for innovation in the financial services sector and elsewhere.”
The working group is currently looking at regulatory approaches to crypto currencies in other jurisdictions. “Regulation here needs to be proportionate and adequate, and to do it in such as way that is not going to hinder development in this space,” co-author of the discussion paper Mai Santamaria, a Senior Financial Advisor at Ireland’s Dept. of Finance.
Attendees also heard how Ireland has proven to be a good location for US fintech First Data, one of the world’s largest payments processors. According to fellow conference panelist Chris Mascaro, head of the R&D lab at First Data in Nenagh, Co. Tipperary, the company processes payments for merchants across 4,000 bank relationships.
“Because of our central position in the ecosystem, it’s important for us to be able to facilitate payments in all currencies and across borders. We only recently opened the centre in Nenagh and have been investigating how to be a main player in – and not fall victim to – a disruptive technology by getting involved,” he said.
Strong community of tech professionals drives Irish fintech forward
Ireland is becoming such an attractive location for cutting-edge research and innovation in this field because of the strength of its community of tech professionals.
“Geographically Ireland is very uniquely positioned as the gateway between the EU and the US, and to some extent Asia,” he said, which works well for First Data, facilitating partnerships and collaborations with other companies researching this space.
The collaborative nature of the fintech ecosystem in Ireland is one of the key strengths underpinning blockchain development here. Enterprise Ireland helps drive that collaboration through its involvement in initiatives such as Blockchain Ireland, itself spun out of the Industrial Development Authority (IDA)-led Blockchain expert group.
Across all sectors, and all stages in the business cycle, from start-ups to large scale multinationals, all work together to share their views and understandings of blockchain, with Blockchain Ireland’s role being to “shine a spotlight” on developments, said Fitzgerald.
“It’s about showing what is going on, what companies are active in this space, what start-ups, what government initiatives are being worked on, what are the challenges, where are the gaps, and how can we connect people together,” he said.
The advent of a Master’s Degree in Blockchain is a statement of intent for Ireland’s bid to become a global blockchain hub.
This multifaceted, collaborative approach to blockchain is yielding results. “Things are moving beyond proof of concept,” said Fitzgerald, indicating Aid:Tech as a case in point.
Recent decisions by companies including ConsenSys, Coinbase, Wachsman and the we.trade group, a consortium of nine major European banks, to base their blockchain initiative in Dublin, also backs up Ireland’s position as a fintech location of choice.
“It’s a fantastic endorsement of what can be done from Ireland,” said Fitzgerald. “We wanted Ireland to become a blockchain hub and we have the companies here.”
Seven Irish regtech companies have been named in the 2019 RegTech 100 list, highlighting Ireland’s impressive position in the rapidly evolving sector.
Ireland is punching above its weight in the regtech field, ranked at number three in the world, just behind the UK, a global leader in financial services, and tech powerhouse, the United States.
The influential RegTech 100 lists the world’s most significant and innovative technology providers who deal with regulatory and compliance issues within financial services.
Download the free ebook: Regtech: Beyond Compliance
Compiled by FinTech Global, the RegTech 100 names Irish companies AQMetrics, Corlytics, Fenergo, Governor Software, RegBot, Sedicii and ViClarity.
Criteria for being considered in the list include the impact the company has had on the problem being solved; growth in terms of capital raised, revenue and customer traction; technology innovation; potential cost savings and other efficiencies; and how important is it for financial institutions to know about the company.
Rapid growth of regtech
In compiling this year’s RegTech 100, a panel of industry experts evaluated over 800 companies, more than double the number considered last year.
The development not only shows the growth in regtech globally but also in Ireland, where investment in the area has risen from around €7 million in 2014 to €270 million in the first three quarters of 2018. Globally, over $4 (€3.5) billion has been invested in regtech companies since the beginning of 2016, and Ireland has attracted a significant proportion of that investment.
Regtech is considered one of the most important sub-categories of fintech as, since the financial crash of 2008, there has been a growth of legal and regulatory requirements within the global financial services industry.
From the perspective of financial services, regulatory risk has become equal to other financial risks, such as currency, fraud, and cyber risk.
According to Corlytics, there are over 2,500 compliance rule books globally, and around 250 regulatory alerts are issued every day by over 900 regulators. That leaves firms exposed to a potential of $270 (€238) billion worth of regulatory risk each year.
With vast volumes of regulations to analyse, financial services companies struggle not only to monitor, but to understand, what is actually relevant to their business.
Regtech companies typically offer clients an automated way of keeping abreast of regulatory changes through things like data analytics and artificial intelligence (AI).
Regtech’s rapid response
One of the main advantages of regtech is the speed and efficiency of its products and services. The use of technology to analyse regulations cuts down on costs associated with the need to hire high numbers of compliance officers to perform similar duties.
To take RegBot as an example, the solution acts as a ‘virtual regulator co-pilot’, assisting traders in real-time to comply with regulations. It also allows compliance specialists to examine regulatory queries more quickly and efficiently.
This functionality speeds up business processes, reduces analysis bottlenecks, and can lead to more business opportunities.
Not only do regtech firms analyse regulatory risk, companies such as Governor Software offer solutions that examine risk appetite within companies. By pulling information from other systems, Governor enables clients to gather metrics and other data to help them make informed decisions.
This allows organisations to understand, map, and monitor the complex interrelationship between risk appetite, regulation and objectives.
Client onboarding and offboarding is a fast-growing regtech subsector. Fenergo’s Client Lifecycle Management software helps companies to manage, and subsequently remove, redundant, obsolete or incorrect information held on clients, accounts and assets.
Marc Murphy, CEO of Fenergo
Inactive or dormant accounts may still need to undergo regulatory credit worthiness checks and reviews each year. Such checks, along with the associated costs for staff, technologies and operational processes required to maintain these reviews, are a waste of resources if clients are not successfully offboarded.
Regulation governing personal data is a space that Sedicii focuses on and has developed technology that eliminates the transmission, storage and exposure of private user data during identity verification.
Sedicii at BBVA Open Talent Awards
Such technology is vital within financial services as it can reduce identity theft, impersonation and fraud, and enables users to consume digital services without exposing private data.
The future of regtech
While regtech primarily deals with financial services, regulatory compliance is a concern in other spheres, such as healthcare. ViClarity’s risk, compliance and auditing software is used by Ireland’s Health Service Executive (HSE) and Bon Secours Health Systems.
Its software increases operational efficiency, offers real-time compliance, and aims to create a culture of accountability and transparency by delivering a complete audit trail on all activities.
Looking to the future, regtech technology will most likely be applicable in any sphere that requires regulation gap analysis, compliance and management tools, transaction and activity monitoring tools, and training tools, among others.
With Ireland producing some of the world’s leading regtech companies while attracting considerable investment, it is neatly positioned to take full advantage of this technological revolution.
An intrinsic challenge arising with the explosive growth of e-commerce is the requirement to send personal information – identification documents, email addresses, phone numbers and other personal data – to every merchant or vendor you deal with.
No matter how sophisticated the encryption, points of vulnerability remain – whether human or technological. Individuals can fall victim to phishing, unwittingly sending personal information to bogus organisations and constantly running the risk of fraud and identity theft, which can take years to correct.
Many organisations have been hacked with potentially grave consequences for customer and citizen privacy. The adoption of new legislation, such as GDPR, and new anti-money laundering regulations are forcing the hands of industry to do more in order to preserve citizens’ rights to privacy with respect to the handling of personal information.
Irish company Sedicii has created a highly innovative solution to this problem by developing a platform that enables organisations to prove a person’s identity against a trusted source without the requirement to send sensitive personal data anywhere.
Known as the “zero knowledge proof protocol”, the Sedicii platform uses complex cryptography which allows two entities (people, organisations, devices) to prove to each other that they have the same data without the need to expose any data to each other. The technology can be applied to a wide range of information, in particular to personal identity data such as passport details, birth date, gender, nationality and address details.
The beauty of the Sedicii solution comes from its versatility. It can be used in KYC processes in banks, in evidential exchange processes by law enforcement agencies and by airports and airlines to securely validate passports and other travel documentation.
Sedicii wins 2018 BBVA Open Innovation Fintech for Future Award
The company won the overall 2018 BBVA Open Innovation Fintech for Future Award along with the BBVA Regtech Award in Madrid in October in what is considered to be the top fintech competition in the world.
“What we do is allow organisations to match identity or other information with individuals or other organisations without any information actually being exchanged,” says CEO and founder, Rob Leslie.
Sedicii CEO and founder, Rob Leslie
Established in Waterford in 2013, the company has been somewhat ahead of its time. “There are two main drivers now,” says Leslie. “The first is blockchain technology and the need to build privacy and confidentiality into it. The second is GDPR and the need for organisations to ensure compliance.”
The Enterprise Ireland High Potential Start-Up has raised €3 million in funding to finance its planned growth over the next 18 months. While still at an early stage, Leslie believes Sedicii is about to enter a very exciting phase in its development.
“We have been talking to potential customers for the past two or three years and have worked on some very interesting proof of concept projects,” he says. “We are trying to build a global identity network and that’s not a trivial task. We have been trying to convince governments and other major organisations to engage with us on that. We have been working with the World Economic Forum on a digital identity project. Ultimately, we will get to the point where financial institutions around the world see the value in collaboration rather than doing it on their own.”
The BBVA Open Innovation Fintech Award will open doors for the company around the world, particularly the US. “In the first instance it put us on the main stage of the Money 20/20 Conference in Las Vegas. Privacy is going to be much more of an issue in the US than it has been up until now and that will create opportunities for us,” says Leslie.
And there is the potential to work with BBVA as well. “We will get into serious discussions with them about how to build a platform for their customers and how it can enable transactions with partners.”
In this context, he notes that the technology is well suited to assist banks and financial institutions with their compliance requirements under the PSD2 open banking directive. “Third parties will have to prove they have the required information before they can access customer accounts. Our platform is ideal for this purpose as it will allow for that proof to be given without the need to share the information.”
And the market for the platform will just continue to grow. “We are doing some interesting work in the cryptocurrency space. When assets can move around the world literally at the speed of light the need to ensure regulatory compliance will be even more important than it is today.”
当今世界，几乎所有金融流程都已经在某种程度上实现自动化，但开户和针对新客户的反洗钱调查仍然大多由人力完成，耗时可长达26天。为此，两年半前创立于香港的Know Your Customer（与反洗钱措施“了解你的客户Know Your Customer”同名）公司开发出一套高科技解决方案，用于验证新客户所提供的原始文件的真实性，节省开户时间，最短可至一天。
“我们以技术合作伙伴的形式，为银行、法律、保险、会计和其它需要高效客户身份验证的行业服务，” Know Your Customer公司共同创始人兼CEO克劳斯·克里斯腾森(Claus Christensen)说。“当初，我们在别的地方遭遇到身份验证难题，觉得应该可以用技术来加以解决。于是我们花了18个月的时间开发出一款产品，去年正式推向市场。”
“你需要通晓企业全方位运营的销售人员，他们必须说金融机构的内行话。我们组建了这样一支销售队伍，但销售周期依然长达六到九个月。这对Know Your Customer这样的新创企业来说相当艰难。但无路如何，一年之后我们就有了19个付费客户。我们的产品已经从市场培育期进入收费增长期。”
克里斯滕森认为，亚洲对像Know Your Customer这样的监管科技企业（regtech companies）来说很有吸引力。
“这里有严明的监管，而我们正是为监管而生，”他指出。“此外，英语也是香港和新加坡的通行语言。这么一考量，亚洲就很有吸引力。去年我们去新加坡参加过展会，后来又去了香港。爱尔兰贸易与科技局的官员们在香港金融科技界（ fintech industry）如鱼得水，为我们介绍相关人士，陪我们拜访客户。”
2018年上半年，克里斯滕森加入香港的金融科技加速器（Fintech Supercharger accelerator）项目，三个月后成功退出。
“该项目由Liberty Investments和渣打集团（Standard Chartered）赞助。我们大获成功，不到三个月就签下了第一个香港客户，比通常销售周期短很多。这个客户就是香港的数字银行解决方案提供商Neat.hk.”
Global banks have to deal with an increasing variety of regulatory requirements and changes, and compliance can be challenging. Thomson Reuters – whose regulatory intelligence feed monitors 900 regulatory bodies – estimates that the number of regulatory changes that a bank needs to deal with on a daily basis has increased from 10 in 2004 to 185 in 2018. This trend can be expected to continue given the continuously evolving financial services industry.
Regtech has registered strong growth in the last few years with support from regulators and a realization that expanding compliance teams is not the most effective way to meet regulatory requirements. According to Frost & Sullivan estimates, the regtech solutions market is expected to be worth US$6.45 billion by 2020. Some of the regulations that are expected to impact the financial services industry include Markets in Financial Instruments Directive II (MiFID II), General Data Protection Regulation (GDPR), Revised Payment Service Directive (PSD2), and Insurance Distribution Directive (IDD).
Escalating risk of non-compliance
The constant evolution of the regulatory environment increases the risk of non-compliance. In the last few years, the focus on regulations and compliance has increased substantially and banks have paid large penalties amounting to hundreds of billions of dollars for non-compliance. Providers will also closely monitor developments such as Brexit to create relevant solutions. At least some of these regulations are expected to have a global impact. For instance, GDPR deals with the use of personal data in the European Union (EU) and European Economic Area (EEA), allowing residents more control over personal data. However, companies outside of the EU who have customers within the EU will also need to comply. With strong penalties for data breaches, which can be 4% of global revenue or EUR €20 million, which is higher, a focus on deploying adequate experts and technology to ensure GDPR compliance is increasing.
Regtech service providers are launching products to deal with specific regulations. For instance, Collibra, which offers a data governance platform, has updated its solution with a GDPR Accelerator. It enables clients to use a phased approach to prepare for and comply with GDPR. Another example is that of Pontus Vision, a London-based Regtech firm. It launched Pontus Vision GDPR to enable fast compliance for financial service firms that struggle to deal with historical data management. The company worked with the UK Government to develop this solution.
Regtech capabilities across the board
Customizable solutions are essential, as companies may encounter unique challenges based on the scope of their operations and current circumstances. The large amount of structured and unstructured data present in siloes creates complexities that can be better managed by solutions powered by data analytics and artificial intelligence (AI). Israel-based MinerEye launched an AI-powered solution, MinerEye Data TrackerTM that enables safe and compliant cloud migration of data. Adopting the ‘compliance by design’ approach, it effectively and continuously identifies, organizes, tracks and protects data. Similarly, Irish law firm McCann FitzGerald has collaborated with Neota Logic, an AI-driven platform company, to develop a GDPR Gap Analysis app. The new app assesses the level of GDPR compliance and identifies areas of high risk.
Another regulation that is a core focus for banks is PSD2; this requires financial institutions to allow third party providers to access consumers’ accounts (with consent). The launch of innovative products by fintech companies will help them to garner greater market share. For banks to take advantage of PSD2, they must explore new business models. It will also lead to greater collaboration between incumbents and fintechs. German service provider figo helps banks to introduce innovative products and services. Consorsbank, a BNP Paribas brand, launched its multi-banking service with figo technology. It allows customers to add their accounts and deposits with other banks, and enables the management of all finances in one place. figo also launched its RegShield solution to handle PSD2 relevant processes and licensing requirements for fintechs and incumbents. This license-as-a-service (LaaS) solution can help to create PSD2-compliant customer processes and prepare reports for audits.
AQMetrics received approval from the Central Bank of Ireland (CBI) in January 2018 to operate a MiFIDII Approved Reporting Mechanism (ARM). Enforced in January 2018, MiFID II aims to offer better protection for investors and increase transparency of various asset classes. The comprehensive regulation with more than 1.4 million paragraphs of rules, the AQMetrics platform will be able to report transactions directly to all European regulators.
Companies will find it increasingly difficult to deal with regulatory complexity. Human resources and traditional systems cannot meet the tough standards of compliance set out by these regulations. The paradigm shift in the regulatory environment will mandate a digital-first approach – and the future of the regtech industry will be driven by solutions that draw on the ‘compliance by design’ philosophy.
Download our free white paper to learn about the pivotal role of regtech in the digital transformation of financial services.
Founded by Shane Brett in 2014, GECKO Governance has developed a regtech fund management solution that allows users to schedule, manage and monitor investment fund portfolios’ regulatory and compliance requirements in real-time.
The idea for the solution arose out of Brett’s real-world experience at the time. “He was working in consultancy, helping banks and financial services institutions comply with the new raft of regulatory requirements which had come about in the wake of the global financial crisis,” explains GECKO Governance Head of Risk and Compliance, Michelle McGuire. “He was working on compliance projects and was frustrated by a lack of software to assist with them. By and large, everything was managed on Excel spreadsheets. From that, the idea was born.”
Governance Engine for Compliance Knowledge and Operations
The GECKO solution, which stands for Governance Engine for Compliance Knowledge and Operations, manages end-to-end compliance needs. “The system is powered by user needs,” McGuire points out. “If you are launching a UCITS [Undertakings for Collective Investment in Transferable Securities] product, the system is powered with all the steps needed to do that. Also, the system is based on blockchain, making it truly verifiable and immutable. It can’t be destroyed or changed. This is very attractive to regulators, as it gives a full audit trail, with all actions time and user stamped.”
It is also fully integrated with Microsoft Office. “This means you can see all outstanding tasks and reminders,” McGuire adds. “The system almost does the thinking for you with reminders. You can set reminders and due dates for compliance steps, and a traffic light system allows users to see the percentage of tasks completed, due, or overdue at every stage in the process.”
Partnerships with DMS and Grant Thornton
Response to the solution has been overwhelmingly positive. It was initially rolled out with DMS, the world’s leading fund governance, risk and compliance consultancy, before its world-wide launch in 2016. “Since then, we have signed an alliance partnership with Grant Thornton in the US, as well as a number of other leading institutions.”
The company now has offices in New York and Sydney and is targeting expansion into Asia. “Enterprise Ireland [the national export agency] has been a great help,” says McGuire. “Our offices are located in their Innovation Hubs in New York and Sydney. Enterprise Ireland has a great network of contacts and that allows you to extend your footprint globally quite quickly. They put us in contact with their colleagues in Singapore and that has been really useful. When you go to Asia and say you’re getting help from the Government, it’s amazing. Finance is a world-wide thing and Enterprise Ireland is able to mobilise its network of key contacts on your behalf.”
That support has also been important within the regulatory community. “Enterprise Ireland put us in touch with regulators in Sydney and Singapore,” she continues. “Their backing really helps with due diligence in that respect.”
The company is set to launch a highly innovative new product later this year. GECKO Crypto1 is a compliance system that enables a self-regulatory framework on behalf of the cryptocurrency token sale market. Most importantly, it provides a verifiable independent blockchain audit trail of compliance to satisfy global financial regulators.
The GECKO Crypto1 system will be powered with the compliance rules of the region in which the ICO is being conducted, and where there are no specific regulations, it will be powered with the 40 best practice steps as outlined by the ICO Governance Foundation.
Crucially, what it does is support initial coin offerings (ICOs) – a brand new way for companies to raise capital. “It’s an alternative to venture capital or equity sales,” McGuire explains. “It’s a quicker route to fundraising than traditional venture capital or bond markets, meaning that companies can raise more capital in a shorter timeframe. We are in the process of raising €20 million from an ICO ourselves. By living the process, we can be sure we develop the best possible solution.
“It’s a very exciting time for the company,” she explains. “We will use the capital raised through the ICO to complete the development of the new solution and expand internationally. Our goal is to expand into London and Asia. Singapore and Hong Kong are emerging as global financial hubs and we see Asia as a strategic region for us in the future. London is also still seen as a global financial capital and that is a strategic target as well.”
A recent regtech pilot by the Commonwealth Bank of Australia (CBA) used a solution with natural language processing (NLP) and artificial intelligence (AI) capabilities. It converted the text of 1.5 million paragraphs in Markets in Financial Instruments Directive II (MiFID II) into compliance obligations. The experiment was completed with 95% accuracy and took merely two-weeks to complete as against 24 weeks when done manually. CBA worked with ING, the Netherlands and the UK’s Financial Conduct Authority (FCA) and used a solution by Ascent Technologies. This experiment indicates the potential for technology enabled regulatory framework, and is only one of the several experiments that regulators and companies across the world are conducting to explore the use of advanced technologies for regulatory compliance.
In Frost & Sullivan’s recent global survey of end-users in the banking, financial services and insurance industry (BFSI), respondents identified Artificial Intelligence (AI) and Data analytics as two of the top three most critical investments for their organization’s digital transformation success over the next 5 years. Advanced technologies such as AI, machine learning (ML), data analytics and Blockchain are expected to play a significant role that goes beyond automation. Adaptive algorithms will be able to undertake activities such as predictive analytics, interpreting new regulations, and real-time reporting.
Game Changing Capabilities of Advanced Technologies
A recent survey of senior personnel from financial companies by Baker McKenzie revealed the growing understanding and acceptance for advanced technologies. About 49% of the executives mentioned that they expected their firms to start using AI-enabled solutions for risk assessment within the next three years. About 29% of the respondents expected their firms to apply AI to know more about their clients and to prevent money laundering.
Traditional banks possess huge amount of data. To manage all of this data – structured and unstructured, existing and continuously streaming, and to meet regulatory deadlines, companies need solutions that can go beyond automating processes. RegBot® is a virtual regulatory compliance tool by BLXLaw, Ireland that can be integrated into business workflows. It uses proprietary algorithms to fulfill various regulatory tasks and requirements, and aid decision making. According to the company the RegBot goes beyond chatting and performs a host of tasks such as automatic classification of clients, notifications, and pre-assessment. The company has already launched a bot to manage Markets in Financial Instruments Directive (MiFID II) requirements and all its bots are General Data Protection Regulation (GDPR) compliant.
Financial institutions spend millions of dollars to address the gaps in their compliance processes. According to a 2017 Duff & Phelps survey of senior executives, they expect 10% of revenue to be spent on compliance by 2022. As companies increased investments in compliance systems, they also ended up with an extremely siloed structure. The lack of interoperability, agility and scalability is a challenge. IBM Watson Regulatory Compliance (WRC) seeks to change this approach with its award winning innovations. WRC uses raw data from papers and website to convert it into a searchable and recognized schema. Following it up with cognitive and analytic processing, it enables its clients to use a single channel to manage regulatory obligations and controls using search, natural language and other tools.
Integration of Advanced Technologies is inherent to regtech’s Success
In addition to the significant regulatory changes such as MiFiD II and GDPR expected to impact the financial services industry, there are many other smaller changes that take place every day. According to Thomson Reuters, as many as 250 regulatory changes and developments occur every day. Manual monitoring or one time updates to existing software in this scenario is not a viable option. Gecko Governance, Ireland is a Blockchain based solution that offers a host of benefits. These include verifiable audit trail, global compliance, and a real-time dashboard. The regtech fund management regulatory solution uses a dashboard to schedule, manage and monitor the regulatory and compliance requirements in real-time.
To maximize the benefits from regtech solutions, they need to be made future proof. To further facilitate this, forward looking regulators such as the Financial Conduct Authority (FCA), UK are also exploring the option of converting their own rule books into digital repositories. Corlytics, a regulatory risk intelligence solutions provider from Dublin, Ireland, has helped the FCA convert its regulatory handbook from an online textbook to an intelligent handbook.
Companies invest millions in compliance and the trend is not likely to reverse anytime soon. Advanced technologies in regtech solutions will create an invisible layer that companies will increasingly rely upon. The high accuracy, data analytics, single dashboard, alerts and insights will allow companies to optimize resources allocated to compliance and achieve better outcomes.
Download our free white paper to learn about the pivotal role of regtech in the digital transformation of financial services.
Technology investment levels are increasing rapidly across the financial services sector, driven by a desire to contain costs, improve compliance, and enhance customer service and productivity. As the ‘steady and predictable’ conditions of pre-crisis times have eroded, new challenges have emerged – compelling established financial services organisations to evolve and increase agility to enhance business performance and remain relevant. The structure of the industry has been transformed by start-ups who have introduced innovative digital products and services that directly challenge the traditional status quo. The disruptive nature of such solutions has had a profound impact across business models, products, services, delivery models, core operations, existing infrastructure and consumer engagement.
The relevance of regtech in a dynamic and complex environment
The financial crisis of 2008 was a tipping point for the financial services sector. Inadequate regulatory reporting and compliance monitoring procedures were among the factors that led to fraudulent practices, initiating the downturn as a result.
Of all industry participants, banks and regulators hold the most critical responsibilities. Regulators have responded by creating stricter rules and making compliance mandatory. They penalise companies when required, but these retrospective decisions are not preventive. Financial institutions are trying to remedy the situation by increasing the number of compliance staff. However, it is apparent that their efforts are not completely effective to meet the challenges posed by a constantly-evolving regulatory framework. The inconsistency and fragmentation of data management – coupled with legacy systems reliant on manual processing – adversely impact data aggregation and the accuracy – and quality – of output.
Over the past decade, technology has graduated from being merely an enabler of the existing set of procedures and processes, to being a disruptor that can deliver a foundation for innovation and transformation. Tech-enabled regtech solutions focus on delivering better compliance so that companies can deal with existing and new regulations more effectively and efficiently. Adopting a digital-first approach, such solutions are designed to automate standard processes, send alerts in case of anomalies, update as per the latest requirements, analyse all the available data, and create reports that can be submitted to the authorities. Automated regtech solutions are able to achieve much more than is feasible through human resources alone – in shorter timeframes, and with high levels of accuracy. In most instances, they significantly augment the capabilities of compliance teams.
Regtech is a key contributor to the digital transformation vision
Digital transformation initiatives drive company-wide change and support greater efficiency. As solutions disrupt different parts of the regtech ecosystem, the digitisation strategies of financial institutions have started to take shape. From a traditional focus of using basic software to automate manual repetitive processes, companies are now more willing to experiment to deliver outcomes that meet customer expectations related to agility and customisation. Some of the most common focus areas for digitisation include the adoption of Cloud for core and non-core functions, banking platforms, application programming interface (APIs) and integration of backend solutions across services such as money transfer or payments.
Most regtech solutions can be integrated with existing IT infrastructure, enabling relatively straightforward adoption. The innovative solutions are designed to meet specific challenges. For instance, consumer verification apps that use artificial intelligence (AI) and machine learning (ML) significantly reduce the time needed for verification and can be done virtually. The impact of regtech goes beyond compliance and contributes to improved operations and enhanced competitiveness. Since data is the key input for the new wave of solutions, the use of platforms, dashboards, analytics, ML and AI enable insight to be delivered to different functional teams within an organisation. The insights can also be customised to benefit other business applications such as customer engagement, marketing, new products and services, thus enhancing overall efficiency and productivity.
The value proposition of regtech has found acceptance across the financial services industry. While companies may adopt it for different reasons and maturity levels of solutions implemented may differ, effectiveness has been proven beyond doubt. The impact of emerging technologies remains in the nascent stage. However, efforts to experiment via accelerators and strategic partnerships are likely to become increasingly commonplace. The focus is on outcomes that will help companies to retain relevance and competitiveness in a rapidly evolving market with a ‘better, cheaper and faster’ approach.
Download our free white paper to learn about the pivotal role of regtech in the digital transformation of financial services.
In a world where almost every financial process has been automated to some extent, the process of onboarding a new client or customer and checking them against anti-money laundering legislation is still largely done manually, taking up to 26 days to finalise. Founded in Hong Kong two and a half years ago, Know Your Customer has developed a high-tech solution, which verifies the original source documentation provided by new customers and reduces onboarding time to as little as one day.
“We work as the technology partner for firms in banking, law, insurance, accountancy, and other fields in need of efficient customer ID verification,” explains CEO and co-founder of Know Your Customer, Claus Christensen. “We first encountered the problem in a different context and thought that we should be able to solve it with technology. We spent the next 18 months crystallising that into a product, which we launched last year.”
Speaking the language of financial institutions
Market response to the product was very positive but firm orders were slow in coming initially.
“We very quickly found that the market wanted the product and was willing to pay for it, but we also found that selling to financial institutions is not as simple or as easy as selling to firms in other sectors,” Christensen adds.
“You need enterprise-level salespeople, who can speak the same language as the financial institutions. We put that team in place but the sales cycle is still six to nine months long. That’s quite a challenge for a young start-up company like Know Your Customer was. Nevertheless, just a year on, we have 19 paying customers. We are now way past the initial product stage and have paying customers.”
Much of the company’s future growth will come from international expansion.
“Enterprise Ireland [the national export agency] has been very helpful in supporting us to make connections outside of Ireland,” says Christensen. “It is an amazing organisation for start-ups. First, the €250,000 investment from Enterprise Ireland sent a powerful signal to the wider market that we are company to be reckoned with. It also sent a message to other potential investors. Enterprise Ireland has also brought us to the right trade shows, introduced us to potential customers, and most of all when we went to Asia.”
Building fintech partnerships in Asia
Asia is very interesting for regtech companies like Know Your Customer, according to Christensen.
“It is very strongly regulated and the regulation is compatible with ours,” he points out. “English is also the language commonly used in Hong Kong and Singapore. When you put these things together, Asia is very interesting. We went to a trade show in Singapore last year, and then went to Hong Kong. Enterprise Ireland’s people are embedded in the fintech industry in Hong Kong, and they helped us with contacts, and came to customer meetings with us.”
Christensen spent three months in the first half of 2018 on the Fintech Supercharger accelerator programme in Hong Kong.
“It was sponsored by Liberty Investments and Standard Chartered and was very successful for us. We had our first Hong Kong customer within three months, despite the sales cycle normally taking much longer than that. This is Hong Kong’s provider of digital banking solutions, Neat.hk.”
Asia presents significant opportunities for the company.
“Being in Asia opens up a range of countries with fast-growing economies, while Hong Kong offers a gateway to China, the second largest and fastest-growing economy in the world. Hong Kong is the perfect place to be in our space because China’s main financial institutions are all expanding outside China. That means they are confronted by very a different set of rules. Regulations are very difficult in mainland China and Hong Kong is the place they come to first in order to get exposure to the global regulatory environment. We are perfectly placed to grow there. It will play a big role for us going forward.
“We are also planning to expand into Europe”, he concludes. “We are looking at the German and French-speaking markets. Enterprise Ireland is being very helpful in connecting us with potential partners there.”
1st for Innovation
Among EU SMEs
40% Global Hedge Funds
Serviced in Ireland
4th Largest Exporter
Of financial services in the world
Top Tech Companies
9 out of 10 operate in Ireland
Ireland’s Regtech Advantage
Irish Regtech companies have established a world-class reputation for helping financial services customers to deal with the increasingly complex and rapidly evolving regulation – as well as continuous disruption and transformation – that characterises the industry today.
Irish leaders in this space combine deep regulatory expertise, with the technology leadership to be found in one of the world’s foremost enterprise software centres.
The Ideal Regtech Ecosystem
Ireland is an important operational hub for some of the biggest names in financial services, from Bank of America Merill Lynch, to Barclays and Sumitomo Mitsui and is the fourth-largest exporter of financial services in the world. It also has a deep heritage in the funds industry – in fact over 40% of global hedge fund assets are serviced in Ireland. As a result, its depth of regulatory expertise and calibre of talent is second to none.
On the technology side, Ireland is home to major operations for nine of the world’s top 10 tech companies and its home-grown SMEs are the most innovative in the EU. Irish Regtech start-ups therefore benefit from a uniquely concentrated and collaborative ecosystem and the opportunity to develop, test and deploy solutions that work for global players.
The value proposition for global buyers
As a result, global leaders in financial services, who need to balance compliance with the need to transform their business model, choose to work with Irish partners who can quickly design and implement sophisticated Regtech solutions as new regulatory requirements emerge. Increasingly, these customers are turning to Irish Regtech partners to look beyond compliance and facilitate operational excellence and product development with enhanced utilisation of data and insights.
What's new in Fintech
Disruption across the financial services industry has led to an increased focus on creating a secure and seamless experience for customers. The Experian 2018 Global Fraud and Identity Report identifies…
The financial services sector, led until recently by traditional banks, is undergoing a period of unprecedented change and disruption. Technology, as well as consumer demand for innovative services, are driving…
The deeper you dive, the murkier the water gets. For even seasoned divers, it can be hard to see what is going on, much less understand why. There are similarities…
With an estimated one in five of the Irish workforce receiving their salary through a payroll system by Intelligo, the company is an integral part of Ireland’s financial services. Its…
Corlytics provides the evidence-based intelligence required by firms to achieve positive regulatory outcomes. The company constantly monitors regulatory activity around the globe and ensures that customers are kept up-to-date with the latest information they need to ensure they are well positioned to proactively manage risk.
Established in 2014, Corlytics helps clients across the financial services community to deal with the increased prominence of regulatory risk following the financial crash of 2008.
“Regulatory risk was always there, but it was very much in the background up until 2008,” says Corlytics Chief Operating Officer, John Keane.
“It rapidly rose in importance after that, and now there is a continuous stream of both new regulations and changes to existing regulations, which organisations might be unaware of.”
That represents a serious risk for banks and financial services businesses.
Cost of compliance
“Fines for breaches can be enormous and run to billions of dollars,” says Keane. “We are dealing with really big numbers, and the estimated annual cost of compliance to the banking sector alone also runs to billions of dollars.”
Regulatory risk is now as important as the other main risks managed by the sector.
“There are many risks to banks and financial institutions,” Keane notes. “Risks such as credit risk, foreign exchange risk, and equity risk are well modelled and well understood. Along came regulatory risk, and it now needs the same level of analysis and understanding as traditional financial risks.”
One difficulty faced by banks and financial institutions in dealing with regulatory risk is the language used to describe it.
Bridging the gap between banks and regulators
“Regulations are typically written by legal regulatory professionals. Interpretation comes down to the written word and people’s understanding of its meaning. Banks tend to be much more numerically driven and need a numbers-driven approach to analyse and quantify regulatory risks and their likely impact. What Corlytics does is bridge the gap between the two sides. We are here to help banks quantify and better understand regulatory risk. We work with regulators as well. For example, we work very closely with the Financial Conduct Authority in the UK, who are recognised as the thought leader in the regulatory space.”
In this sense, Corlytics regards itself as part of the regulatory ecosystem.
“We translate regulatory notices into a common format. We have technology that monitors regulatory content on a world-wide basis. There are hundreds of regulatory notices issued every day around the world. We use a variety of artificial intelligence (AI) and other systems to help customers understand which notices are relevant to them. We have a global taxonomy that is applied on a consistent basis. It allows organisations to view content relevant to them in a standardised way and helps them anticipate when risks likely to arise, what the impacts might be, and how best to mitigate risks.”
The company’s target market is the world’s leading financial institutions.
“Ours is very much a global solution,” says Keane. “We have 38 people in our team headquartered in Dublin, with presences in London, New York, Boston, and Sydney. Our core market is the Tier 1 and Top Tier 2 Financial Services organisations. We are focused mainly on the US, the UK, and Europe but we are seeing a lot of interest from Asia – Hong Kong and Singapore, in particular. We are also attracting interest from Australia.”
Enterprise Ireland, the national export agency, has supported the company to make international connections.
“Enterprise Ireland adds significant value in helping us to grow internationally. They offer practical assistance, such as spaces for us to hold meetings in their excellent network of overseas offices. They make introductions between companies and executives at senior levels. At the recent MoneyConf event in Dublin, Enterprise Ireland held an event the day before, pairing up regtech and fintech firms with potential clients and partners. That is exactly the type of proactive assistance that is invaluable to companies such as Corlytics and their international partners.”