The 2022 Expert-In-The-Loop Forum by Compliance.ai is now available on-demand! Watch sessions here

Nirvana

Ronjini Joshua (RJ): Hi, this is Ronjini Joshua, I’m on the marketing team of compliance.ai. Today we’re interviewing reg tech expert and compliance.ai advisor Nirvana Farhadi. Hi, hello, how are you?

Nirvana Farhadi (NF): Hi, I’m good. Thank you. I’m excited to be here.

RJ: Great. So, I’m very excited to get some of your insights on the future of reg tech in banking today. So, this particular episode is will the reg tech shape the future of banking? And it’s kind of an obvious answer, but I think we will dive into it how it will do that. So, to get started, can we get just a quick background about you. And I know you’re very involved in the industry, and you’ve written some literature. So please give us a quick introduction to your background.

NF: I have 20 plus years of experience in financial services and have worked with most products and instruments and most sectors in the industry, buy side, sell side, trading venues, have advised on regulations, I’ve helped develop some regulations out there in industry. And after a while, I decided to kind of get into the technology space and started pioneering in the area of financial services and regulatory technology. So, I have experience in finance for 20 plus years, and then stepped into technology. So, my last role was with Hitachi Vantara, and I was the Global Head of Regtech and Compliance Affairs. I own the business for that and we created solutions to line business organizations to address their compliance and regulatory needs.

RJ: Great. Wow. Yeah, you have a lot of background. That’s so nice.

NF: I’ve been around for a while.

RJ: It’s nice to see a woman in that position as well. So that’s always good. Okay, so let’s dive into what you know. I think the first question we have is, what do you see as being the core challenges for financial institutions during this like, crazy pandemic timeframe?

NF: Right, so suddenly, everyone’s become an expert in the pandemic over the past year, obviously. So, I get this question quite a bit, or saying, as we were already in on a trajectory of embracing technological thoughts of, you know, transformation initiatives and organizations and what have you. But what has happened with the pandemic is that our timeline to adopting to digitization and transformation has been accelerated. And by that, I mean you know, a lot of people were locked down, nobody could go out to the offices and work. And the environment of the office was extended to people’s homes. So that has a lot of implications. You know, as well as the, you know, separating your work life from your home life, and everything is just rolled into one now, you know, before you could go out to grab lunch at the office, walk around the coffee area, and speak to someone and have a chat, and now you’re just at home. Yeah, and your coworkers or your dog or your cat or your kids, and, you know.

RJ: The garbage truck in my case.

NF: Exactly. And every time you’re having a zoom call, and you know, with all the brightness of technology, but they’re slightly like seances sometimes where, you know, everyone says, Nirvana are you with us, you know, we can hear you, but we can’t see you, say something if you hear us. So, it’s like you’re trying to invoke the spirit. So, you know, we’ve had a lot of those challenges. And, and also the mental psychological challenge of being locked down and at home, not having that space to be able to just walk out the door or, you know, do anything like that. The uncertainty of you know, many people lost their jobs, unfortunately, you know, they lost loved ones. That impact has been global. From a technology standpoint, and a business standpoint, as I mentioned earlier, the infrastructure, we’re forced to be extended to people’s homes. Now, how do you monitor compliance during this time? You know, how did you put those policies and procedures in place to keep an eye on people’s activities? You know, so technology has had to be ramped up in those spaces, regulators have had to, you know, get their initiatives together and you know, start applying this and changing the rules, and giving people leeway in terms of time extensions, etc. So, it has had a tremendous impact on everybody, but we have the positive that we’ve seen around this is that, you know, our timeline has been accelerated. We are seeing a lot more technology having to be produced at a much faster pace. And people are having to adapt, change, and shift very quickly in a very uncertain changing environment.

RJ: Yeah, that’s an excellent point. I think it’s, you know, unprecedented. Right. And nobody was prepared for that.

NF: Yeah.

RJ: I think it took a year for us to get used to it. And now we’re still kind of struggling, I think we’re still talking about the impact. I feel like a lot of people expected us to not have to talk about this anymore at this point. So, it’s very interesting where we’ve been having webinars and talking about the continuing effects of the pandemic on regulation and enforcement, and how the new administration obviously, there’s that whole different chapter here in the US that happened of like, you know, changing of the guards. So, there’s been a lot of a lot of craziness happening. Can you give me a pinpointed view of the economic impact of you know, going digital, or that datafication of regulation? How is it going to impact organizations and financial institutions, as they have to become a little bit more nimble and digital, as you know, just moving forward into the future?

NF: Let’s be honest with you, when we first started this venture, I mean, reg Tech has been around for a long time and other industries and sectors you sit in biomedicine and different industries, and pharmaceuticals, etc. But in financial services, when we started kind of thinking about this and putting it out there, it was as a result of certain regulations with really onerous obligations on firms, and firms having to really focus on the compliance and regulatory aspect of their operations and hemorrhaging a lot of money into that, because they have tactical, manual processes in place, and not enough people to be able to do that, budget constraints, cost constraints, etc. And already a lot of money was being hammered into keeping up with regulation, and the tsunami of regulation kept saying. The word digitization and digital transformation banded around since God knows, you know, 50 – 60 years ago. We’re always in that process, because technology keeps advancing. So we need to keep up with that. It’s never a never-ending cycle.

RJ: Right.

NF: However, your question around the economic impact of that we’re already investing a lot of money in all these projects. But you know, working with a lot of these financial institutions, they have a lot of legacy systems, which were created, you know, in the Thatcher and Reagan era for crying out loud, and they’re still operating and running the operations of these organizations. They’ve had dinosaur legacy systems, patchwork of different kinds of technologies to kind of keep them up to date, and really things that were created for another purpose still being, you know, adapted, like a Swiss Army knife to fit into the mold of what’s needed today. So that clearly has to change. And you could argue that, you know, it’s so expensive to, like, get rid of all of that, something new, but in my personal view, I think the long term benefits of embracing transformation, and this shift is you put an investment in in the first place, and it’s a large amount, but then the cost effective benefits in the long run are a lot better when you have, you know, adaptable, organic technology in place, which is sophisticated, and as using technology like AI, like machine learning, and harnessing that power to automate processes that can really be done by an algorithm or some of that technology and helping you to focus your, you know, human capital, intellectual capital on to the core business and other areas of the business, which that, you know, is needed. So, the long run, cost effectiveness of it, I think, is great. And, you know, technology is advancing, and regulations need to advance along with that. So, you know, we’ve got rover regulations coming out, a lot of regulators are using those initiatives and actually doing sandboxes a lot of the role books being worked on so that they are more automated and keeping up with the technological times. A good example is the GDPR, for example, is one of the first regulations I mean, a lot of regulations have technical standards that you know, we have to adhere to run payroll with technology. But if you look at GDPR, it was one of the first regulations where they said compliance by design is to be put in the product development stage right from the get go. So that helps in itself when the regulators are kind of putting that emphasis in that it helps us to prepare better.

RJ: That’s a perfect segue into the question of where can we put some of this technology? Like, where can we apply it most in the compliance areas to make business more efficient? And, you know, how does that work? Because I know we’ve talked a little bit as an organization about how AI is not replacing anyone but augmenting what we can do and automating. And you just mentioned a little bit about automation. Where do you see like, where do you see the new technologies being applied to compliance?

NF: They’re being applied across the board in different areas whether it’s around compliance, monitoring, reporting, regulatory reporting requirements, AML requirements, or KYC requirements. We’re seeing it across the board. Now, one thing to bear in mind with technology, and I’m happy you said this phrase in particular, augmenting, right? So when people think about AI, they think artificial intelligence. I kind of view it in a depth as two schools of thought Normally, I kind of think it’s augmented intelligence. It’s something that’s augmented with data and input around that. And you have to bear in mind with technology like that, it’s all very fundamental to have the right data in place so that technology can be harnessed in the right way. If you put garbage in, you’re going to get garbage out. So the key elements that any organization needs to have in place is to kind of have a grasp of their data and their data lies, the kind of data that they have whether it’s dark data, toxic data, or static data. All that kind of stuff needs to be put in place. There has to be proper governance systems and controls in place. They need to understand where their data is, how to harness that, and give the right type of information into that system to be able to leverage that. So, you know, that’s key.

RJ: I guess, just to add on to that question, where do you think that’s going to affect compliance officers and risk officers? Where do you think it’ll affect their time the most? How will it benefit their time the most? I think the idea is to apply technology to make the job a little bit more manageable. So where do you see that happening for them? And, obviously, it has to be an organizational change. But what do you think about that?

NF: Absolutely, it has to be an organizational change. Now, having been on that side of the fence, I’ve had to wear the compliance hat or the operations hat myself. At the time, we had new technologies coming in, and new systems to do reporting on monitoring, but I needed a PhD in rocket science to be able to navigate the dashboard. I would get so frustrated because it would consume so much of my time. I could have just like, written out an email and sent it off, and what have you. I’m happy to see a lot of improvement has happened throughout the years with technologies that balance. But, I think in terms of time and efforts that compliance officers can put in and if they have the right technology in place, then the efficiency of what they do can be harnessed. And I think that’s the key. It has to be the right piece of technology for them that you don’t need a degree in rocket science to be able to operate. Traditionally, especially with my background, when I first got into the reg tech, I had no idea about tech, and it’s like, I really don’t need to be doing this. I just wanted to do my job, you know, but can I do this? But no, it needs this password, and this, you have to understand this. So it’s very complicated. What we’re seeing now is the technology, products, and software that are out there are a lot more sophisticated. They’re really focusing on trying to bring down the manual element of the compliance work where if I’m spending my time doing an Excel look up to look at a monitor, hundreds of 1000s of trades a day, manually, then there’s a product out there that can actually help me do that. Now, some of my time can now be focused and actually looking at some of the false positives or the flags that come up and, in that report, and actually figure out what I need to do with them. So, it takes that efficiency elements, and I guess it increases it by a hundredfold. It is a lot of time, cost energy. And you got to remember a lot of these regulations that come out need different teams to be able to deal with them. There are budget constraints and what have you. Then you’ve got one team dealing with one regulation and another team dealing with one regulation and the budget for that regulation runs out. So suddenly, they’re in the middle of a project for that, but nobody kind of thought that it was going to take longer because an element of it has been recast. Suddenly, they didn’t see that happening. So what are they going to do, slip this team on this regulation or that regulation? Using technology to be able to address some of these concerns, and automate automation is key, and cost reduction and resource burdens. That’s what regulatory technology really does and focuses on. This helps the business to be able to have a more efficient compliance and regulatory system in place.

For most financial institutions, their core business is to make money. So, compliance and regulation aren’t their core business. They have to have the right parameters and safeguards in place, and then their business is a compliant business. And a compliant business is a good business, and they can shift their focus from trying to firefight different regulatory issues than actually to their core business and make some money for their customers.

RJ: Yeah, you made several good points, obviously. I think they were already in a race against time. So I think bringing in reg tech kind of helps them. Like you said, to actually go back to the business portion of it, rather than just something that’s just been a section of the business. I think when people say efficiency, sometimes they get a little worried about what efficiency means. Does that mean I can’t bill anymore? Does that mean, I can’t do this? I think what it means is you do your job better.

NF: Absolutely. It helps you to do your job better. Your productivity goes higher, as well.  One thing I’d like to make a comment on in this area is that there’s a lot of fear that this is going to take over people’s jobs and technology is going to take over people’s jobs. But actually, that’s not the case. We are still going to need to have a kill switch, and we are still going to need that intellectual human capital to be able to make those key decisions. We are not at the stage, maybe we will be one day when we hit singularity. But right now, as it is, we’re not at that stage where you can you call up your local bank, and you’re having a conversation with an automated system that drives you absolutely bonkers. After 10 minutes, I’m shouting and slamming my phone down. Unfortunately, we have this an iPhone you can’t do that with. The old phones you could. You can tell how old I am now. But it’s just still so frustrating. You know, so that’s not going to go away just as yet. And also, it puts us in a better position to be able to preempt for. Nobody can predict the future. I’d like to think there are people that can. But really, it helps us to put safeguards in place. And to be able to think of it from the get-go rather than, oh, now everything has happened. And what are we going to do? We’re going to be like firemen running in after the house has been burned down to a crisp with the running hose and go oops what happened, you know. That’s one of the key things there too.

RJ: That’s good. Yeah, absolutely. What do you think is maybe the future of what’s going to be coming up in like, 2021? What will we be seeing in the regulatory landscape, affecting financial institutions as it relates to technology, digital digitization, just, you know, that area of reg tech? What do you think will happen? Where will we get to this year? And you know, should we be looking for anything new?

NF: So, let me step back here about seven, eight years ago. I was on a panel; I believe that somewhere maybe it was a bit less time than that. We were talking about financial services, regulations, and reg tech, and we’re still banding this down. Somebody said they were so concerned about banking and financial institution. I turned around and I said that the landscape of financial services and the way it looks is going to completely change within three to five years from now. You’re going to have a lot of players that have not traditionally been in the space like the big tech giants that have kind of come into this space. The face of banking as we know it is going to change. I was laughed at on that panel. Why would they want to do that they’re already so good at, you know what they already do? Why would they want to come into financial services? The next day, one of the big tech companies released a financial product. So, one point to me! Saying that for many years that this is the case; you’re going to have new entrants, new players. As we can see, today, the way we are. There are a lot of the online banking products and financial institutions and they’re gaining more traction. Especially now with the pandemic happening they have more of an advantage. Let’s also step back here, because a lot of those guys that haven’t been in financial services, but they’ve got the cutting-edge technology. However, they haven’t had the hundreds of years of experience that incumbent financial institutions have had with all the regulations that they’ve had to deal with and the complexities. I have kind of been operating with a bit of a cowboy mentality in that space and thinking we’re disrupting, and we’re doing this, but really not thinking about the wider consequences as a result. So, what we will be seeing is a lot more regulation, not just for the traditional financial services, but the online kind of institutions, the more cutting-edge ones out there, and the tech companies. Data privacy is another issue because people are wising up to the question of, “Hey, what are you doing with my data?” The data is the new commodity, right? So, a lot of people are aware of that they want that to be protected. Then you’ve got the big tech companies trying to invite to be the operating system of our lives. There’s going to be a lot of regulations around that and the future. Something like regulatory technology isn’t just applicable to financial services. It’s across all industries. So, any industry that has any type of regulation can benefit from regulatory technology. It’s important to remember that because in my view, a lot of people might argue with me, but it’s not a subset of FinTech. It’s not a subset of anything. It actually overrides all of that and can be applied and harnessed in the right way to kind of help safeguard consumers, organizations, and businesses. It’s definitely a top-down kind of approach that needs to be taken.

RJ: Yeah, I agree. I absolutely. Well, it has been so lovely to speak with you. Thank you so much for sharing your information with us. We will be back in advisors corner again next month, but thank you for joining us!

NF: Thank you for having me!

Tags: , , , , ,

X