WEBINAR: A look into the future – Preparing for 2022 Compliance + Regulatory trends

WEBINAR: A look into the future – Preparing for 2022 Compliance + Regulatory trends

In this webinar, leading experts in regtech, compliance and risk take a look at what happened in 2021 and trends that are forthcoming in the new year including deep dives on:

• AML/BSA and corporate transparency
• Cybersecurity and Operational Resilience
• ESG and the year ahead
• Cryptocurrency and other hot trends…

Detailed transcript below (translated by Otter.ai)

Compliance.ai Host  

Hello and thank you all for joining today’s compliance AI webinar a look into the future preparing for compliance and regulatory trends and 2022. Today leading the conversation we have CEO and co founder of compliance AI cave on Alicante, Reg tech expert and visionary nirvana for hottie and risk compliance and operation expert Rick Dupree, we’ll dive into this session and giving you guys a preview of hot topics for BFSI as we enter 20 to 2022. Now during the webinar, if you have any questions, you can submit questions during the conversation directly through chat. And we’ll have a q&a period at the end of the discussion, where I’ll drop those questions to our panelists. If you have any other technical issues, feel free to message me directly. I’m listed as compliance study I during the webinars so we can resolve them as quickly as possible. came on. I’ll let you take it away. Thank you so much, Ronjini, and Rick and Nirvana appreciate you joining. So Nirvana, we’re going to go with new right or should we use Nirvana performance?

Nirvana Farhadi

Whichever, you know, Madonna share nirvana?

Kayvan Alikhani

Absolutely, that going into 2022, looking at regulatory trends and bringing out your crystal balls looking at predictions, in terms of trends that are going to be important for organizations. We took four topics specifically around privacy, anti money laundering, and how that is going to be impacted what we think is going to be requiring more attention from an environmental social governance ESG topics and of course, something that affects our company, you know, how we see foresee the regulation of technologies that are used within the financial sector? And last but not least COVID? Business Continuity, business resiliency, how do we see operational resiliency as we go into the new year?

Kayvan Alikhani 

Okay. Very good. And starting with privacy, you know, the topic that has been on everybody’s mind, you know, in the state of California where now of course, not only do we have a privacy rights act and Bill of Rights from a privacy perspective as a consumer, and also the agency to the state has stood up an agency to not only state the law, but also enforce it and enforcement’s have started to trickle in state. Attorney General’s Office stated that notices and enforcement’s had gone out to a pretty wide variety of organizations, including financial services organizations reach

Rick Dupree

Taylor’s social media companies and many others. And we also know similar legislation is underway to that in was implemented in California in different states and in different stages all the way from Virginia and New York, and many other states as well. So, Rick, looking at your crystal ball heading into 2022, are we finally going to see a national privacy law in the United States similar to GDPR, governing? Europe? What are your thoughts on that? And let’s go a little bit further into privacy. Okay, well, my crystal ball says, probably not with respect to a national privacy law in the US, certainly nothing

Rick Dupree

like the level of GDPR in the EU. But that being sad, there’s a lot of privacy laws, regulations and practices going on. So you’re going to absolutely see an increase in privacy, either requirements or best practices. And I’ll talk about a few of those. Also, in talking crystal ball, I think, overall, an overarching theme for I think all of these, these topics here, or something kind of across all of these is increased enforcement, as you touched on with privacy. But So diving a little deeper in privacy, you’ve got your CCPA. Of course, it’s been in place for some time in California, it’s very comprehensive privacy law, not again, at the level of GDPR. But fairly close. They have a CP Ra, which has been referred to as CCPA 2.0, goes into effect next year. So I anticipate and I would recommend that 2022 is focused on on preparation for that lot of additional things within the new law that weren’t in the CCPA. You’re also seeing forthcoming amendments to the HIPAA Privacy Rule. A lot of this, I think, is coming out of COVID. And some some stricter privacy requirements there in the Health Care Center. And, and certainly, even in

the FBI, as you know, as employers, and then you’re seeing this kind of best practices privacy. So Apple is, you know, it’s, I see companies in the tech and even including the FinTech space, who are kind of taking privacy and making it a competitive advantage, quite frankly. So they know, all these privacy rules are coming. They know they want to do business internationally, so they have to adhere to CCPA that to hear to GDPR why don’t we just have a privacy practice policy and practice that addresses all of those, but really gives us a competitive advantage. And you’re seeing that a lot in the tech space, especially Apple, I mean, 15.2 that just came out had 38 separate privacy and security fixes. Um, one of the most significant, you know, privacy updates to date. So that’s kind of my habit. There’s healing going on, right. Yeah, absolutely. 

Kayvan Alikhani

And that’s situation that never stops giving, but anti money laundering continues to be on top of mind center stage. Do you see that continuing? What strategy and solutions do you anticipate in regards to AML going into 2022? 

Kayvan Alikhani

Yeah, again, enforcement. I mean, you know, it’s these are oldies, but goodies, you know, privacy. AML BSA whistleblowing has always always been around, but it’s really getting some teeth. So same thing, same thing with AML. I mean, this has, you know, incorporate transparency and AML. We’ve seen an uptick in enforcement actions. Very significant one other UK just recently with NatWest. AML has taken center stage, I think it will take more center stage in 2022, especially as we look to move more from Fiat to to crypto spaces, as as companies and as financial as FIS are looking to do that one of the biggest challenges with ultimately converting back to Fiat is or from our back especially, is the potential for money laundering. So a lot of FIS

are looking at that there’s several governments around the world that are also looking at how can we address AML in a way that makes crypto more receptive to RFIs. Within within our country so that we can get into that business? Because I think that’s, again, ml AML being leveraged in a offensive strategy rather than a defensive one. You see 2022. Yep. Yeah. And we’re talking on crypto. And that topic you mentioned is quite interesting. You know, they’re using Blockchain as a mechanism to actually help with anti money laundering efforts. And the implementation of that could lead into full anonymity or one that is actually a powerful tool in the hands of those who want to enforce AML. So we’ll talk about that a little bit later. So the SEC set up an office for whistleblowers, do we see that now ending up having a huge impact on BSA related whistleblowers going into 2021? What do you foresee considering that office now being in place, I think it was fairly recently done, but what do we anticipate to see regards? Right, two months ago? Okay. So I believe the office is the enforcement arm as well. So it’s going to manage the program,

Unknown Speaker  11:23  

which actually, so you have people actually looking at kind of the cases, so to speak, and making decisions with respect to potential in enforcement.

Unknown Speaker  11:34  

I think I’d read somewhere that the SEC is awarded 1 billion to whistleblowers to date, so

Unknown Speaker  11:41  

that’s not the fine. That is the actual reward the reward to the whistleblower. So you put that into context that, you know, there’s a lot of focus here, again, whistleblowers and old and oldie but goodie, and they’re just giving it more teeth, I think, you know, the Panama Papers, which was several, several years ago. But that has kind of led to where we are now. Um, it’s it’s, you know, just kind of conduct and ethics in general, there’s a increased scrutiny. And I know, we’ll get into ESG later, and there’s a tie in there. But yeah, that’s my that’s my prediction for sec, especially given the the whistleblower office, they’ve established that sending a clear signal, they, they plan to take some action in 2020. And additional protections are being provided to them. So possibly, the whistleblower is protected, they’re being rewarded. Privacy is now being very much enforced and organizations are being fined. I guess, all of this is leading to making a case for corporate transparency, as we further transparency as we go into 2022. And, of course, another trend, we’re going to talk in a minute with Nirvana about on the ESG, which also lends itself to a lot more transparency and reporting by the organization’s right. Yeah, no, absolutely. I mean, it, you can almost put it all under the umbrella of corporate transparency. But, you know, again, my my informed and educated predictions for 2022 It’s not necessarily around kind of the alphabet soup of regs are our you know, the, the Truth in Lending changes to that it is this kind of kind of corporate, you know, how you conduct business,

Unknown Speaker  13:30  

how you handle your customers data, kind of a broader focus. But with enforcement.

Kayvan Alikhani

Absolutely. And I’m just looking at the picture of this gentleman, I think he’s clearly overdressed for what He’s about to do in the picture, but it’s not dressed for a little bit overdressed, at least compared to me, which that’s not a high bar anyway. Moving on with on ESG environmental social governance, we obviously saw a huge amount of activity in 2021. Specifically in the EU, we saw the sustainable finance disclosure regulation go into effect as of q1 of 2021. us moving a little bit slower. But taking a look at the SEC’s regulatory agenda, we still actually focus on ESG, including climate change disclosures, corporate board, diversity on the s part of it, and cybersecurity and risk and Capital Management, globally, of course, organizations coming together around the UN Climate Change Conference, which happened very recently, as a continuation of the Paris accord and really making commitments into becoming carbon neutral and environmentally sound. And of course, that that’s all focused on the E part of it. So Nirvana moving into 2022 What should we expect going into this new year from an ESG regulations perspective and the companies that need to adhere to them?

Nirvana Farhadi

Sure there’s there’s a few things happening. And I don’t think it’s just going to be 2022. That’s going to be we’re going to is the main focus. This is beyond 2022. You know, in recent years, climate change really come to surprise, corporate governance in the most kind of pressing ESG issues. And really a lot of investments gone into these areas. But there are new risks that are emerging for companies, investors and the planet in the coming decade, that really are going to test how well we’ve learned past lessons from how companies behave in nature, to how it treats its employees and community all the way to its leadership and diversity. So the environmental social governance ESG frameworks got to be one of the most important sets of standards organizations are grappling with right now. But none of the three tenants core tenants of ESG exist in a vacuum. So the initiatives are all interdependent and really linked linked to what’s happening in the world. And they can change in importance with the public awakenings of science and societal shifts from year to year. But as we move forward in 2022, the core principles that companies should be paying attention to are as follows, I guess. So first and foremost, climate change and the environment is, is of utmost importance, firms are really looking inward at their carbon footprint and how they tie directly to climate change around the world, with financial regulators making a huge priority under the Biden administration here in the US, and we’re seeing in the UK and across Europe, where, you know, they’re pledging various green standards and clean energy commitments. And really, a focus on climate change has made it even more apparent, but you know, people are taking a stand on these issues and opening up the books to show transparency has become really pressing.

So we’re going to see a lot of organizations across industries really continuing to, like you said, you mentioned aligned to the lobbying efforts, especially with the Paris agreements, and taking their cue from the European Union. In that sense, a carbon offsetting is going to go mainstream, in my view, I think carbon offsetting, you know, compensating for co2 or other greenhouse gas emissions, that’s gonna become mainstream thing, and more sophisticated because it offers short term solutions to reducing emissions. So it can be as simple as you know, forests or restoring degraded land or planting trees. But this is something that’s going to be a bit more relevant. And we’re gonna see a lot more that another thing that I’m also seeing is and to watch out for, and I’ve been hearing about is something called the new Amazon effect. And I don’t mean as in the forest or the jungle. I mean, Amazon has in the company, you know, in the effect, its corporate pushing corporates for Net Zero supply chains, is me. So for an example, everyone buys from Amazon, but you know, who does Amazon by fours. So you know, the push to set a net zero target is getting a common refrain. And people are asking, what do we do about our suppliers? How do we do that. So as the world’s kind of biggest companies work to get Net Zero, downward pressure, we’re going to see in terms of the GHG, greenhouse gas emissions, and that looks to become quite familiar to all companies, and the pressure that they’re going to face in that area, lobbying and transparency and accountability is going to continue. And we’re going to see a greater call for transparency, with advocacy. And you know, since last year, the events that took place, January 6, we saw that in the attacks on Congress here in the States. So organizations are being asked by their employees and their investors to really address where their lobbying efforts and political action action committee members going and really, more importantly, why. So there’s going to be a lot of scrutiny around that, for organizations that are directly tied to legislative and regulatory risk. You know, the modern ESG strategies are looking into the financial implications of lobbying and using employee funded money, right for political stuff. And I know we don’t have too much time but workout and safety and human capital management is going to be a huge issue as well. There’s already a lot of investment going into this space in this huge investor pressure in this space, especially given regulatory proposals and mandates both here and in the UK and Europe, which is really seeing a growth and shareholder interest to monitor and affect the lives of workers as in Yes. Strategy.

Seeing companies begin firing employee turnover. And you know, doing that, sorry, I think I have a lot of deliveries coming. Sorry about the noise in the background and just a couple more things, so put in executive diversity, this is a serious area, and we’re going to see a lot of more focus on the s in the ESG. So social issues has come have come to the forefront public discussions, as you know, COVID really exposed a lot of systematic social problems for us. And in the past, these tended to lag behind environmental action, but it’s as they were quite harder to define. But this is going to be really huge in this space. And also, one huge trend that we’re looking at in this space right now is the organization’s diversity on its executive teams and their corporate hierarchy. So we’ve been seeing recent examples, I’ve seen and heard of firms actually banning the hire of white middle aged males, unless it’s been pre approved by leadership. So you know, there’s a lot of emphasis on having diversity on a board level, and, you know, a lot of risk restrictions posed into that place. And finally, on this, there’s a, you know, supply chain measures I can go into, and also, you know, protests and social movements, et cetera. But I think what we need to also have a final look at is, in terms of the data, the data for reporting these ESG principles, et cetera, is going to be there’s going to be a lot more data for us to do. So that’s a, that’s a upside for us. So there’s going to be an increase in those kind of data platforms, etc. And solutions out there to help with the reporting, and better meet their reporting demands. The current mixture of reporting frameworks really makes it difficult for investors to collect and compare data on ESG. But I’ve been seeing a lot of solutions point solutions popping up now in that space to really simplify it for investors. And investors. It’s also has absolute Sorry, sorry to interrupt you. Go ahead. No, go ahead. Go ahead. 

Kayvan Alikhani

Yeah, it’s not just investors, I feel that the regulator would probably do the same thing that we’ve seen within cybersecurity or within privacy, it’s more of an incentive, also, even what we talked about, in terms of, I think it all feeds back into that overall corporate transparency and the ability to use that as a badge of honor, both in terms of meeting or beating environmental regulations. And so yeah, absolutely. So you know, on that point, regulators around the world are now addressing the lack of clear definitions and standardized data, right. So in Europe, the sustainable financial disclosure regulation, the SFDR, that brings mandatory ESG disclosure obligations. And you know, while the EU taxonomy kind of sets out a list of environmentally sustainable economic activities, so we’re seeing similar frameworks in other jurisdictions that include the guideline on ESG risk management joined up, for example, by the Monetary Authority of Singapore. And recently, I believe the regulators in India announced that they’re also considering a disclosure and investment framework for mutual funds, ESG investments, which is going to come out and be enforced, I think it was October 2022. So definitely, you know, it’s not just investors or shareholders, it cuts across the board. Yeah, absolutely. It’d be interesting, leading into 2022, how companies start establishing what we’re seeing a series of three to five year plans, some even 10 year plans, based on that. That kind of deadlines and approaches we saw on the UN Climate Change Conference to kind of have work backwards from there and look at neutrality or carbon chassis, but also social governance and its own track. So interesting to see how this gets regulated. Right. federal, state and national in the in the EU, of course, SF. Dr. is establishing a framework for that. So going into a poll from the audience, what is it that’s on your mind, you know, from the three topics we’ve talked about, so far operational resiliency one we’re going to talk about a little bit later, and crypto as well. Which one is top of your mind going into 2022?

Kayvan Alikhani

And I guess we’ll wait for a minute. let people come back with their results.

Compliance.ai Host

Well, the good thing is no one is laughing in the face of danger. 

Kayvan Alikhani

Not yet, I was gonna have those. Where’s the where’s the adrenaline rush? Right.

Rick Dupree

I’m just glad I didn’t get an Amazon delivery during the call.

Unknown Speaker  25:09  

Which surprised me. It’s so ironic I say Amazon and then suddenly I had like two deliveries.

Unknown Speaker  25:17  

Our dog gets Let’s go. That’s the trigger. I’m in a different room. But yeah, that was

Unknown Speaker  25:23  

happening very quickly. So maybe for your dog. That’s the word Amazon. Yeah. I think. Yeah. Privacy and cyber. Going into 2022. Should I show the results? Are you already displaying?

Unknown Speaker  25:36  

Oh, wow.

Unknown Speaker  25:38  

Interesting. Yeah.

Kayvan Alikhani

Overwhelmingly, it seems like privacy and cybersecurity. So going into that one topic that we have seen kind of brewing. Sorry, go ahead. 

Yeah, going into 2021. Obviously, 1920 good number of cryptocurrencies rollercoaster rides in terms of value and in terms of being looked at as either a currency or more of a speculation. And of course, from a regulatory perspective, looking at crypto through the lens of cryptocurrency versus the underlying technology with this blockchain. We were talking about that earlier. Rick was talking about this also, right, being a important, you know, aspect from a anti money laundering perspective, looking at a blockchain based implementation, replacing paper Fiat and imagining that now, you know, where money entered? Let’s call it the market and how it changed hands. And where did it end up? That’s a dream come true from an AML practitioners perspective. But then, of course, you look at the actual implementation of many cryptocurrencies that they require, and are implemented 100% Based on the anonymity of the individual or the groups that were performing that action. So they’re very much at odds with what would be required from an AML, KYC Kyiv. And then ultimately, from a transaction transparency perspective, but the specification itself, just to be clear, does not prevent disclosing that info. And that’s, of course, led to private markets. And the implementation of crypto at a let’s call it close ecosystem perspective, going into 2022. Do we feel that from a regulatory perspective? Has have crypto regulations settled down? Is the dust settled? And what do we expect going in? from a regulatory perspective?

Maybe Rick, get started and NIV please feel free to jump in as you see fit. Go ahead.

Rick Dupree 

Yeah, so I think you touched on both the challenges and the opportunities, right. So I’m on how crypto is kind of in place today. It’s totally anonymous. Right. But and that’s the challenge with

regulated FIS, you know, fintax neobanks. In general, anyone regulated or wants to be regulated, so that they can get access to you know, federal payment rails, other types of money movement efforts?

That’s a challenge. It’s an incredible amount of risks to potential I don’t evaluation, totally aside. It’s so just focus on the game now. But and that is where I believe the focus is going to be in 2022. And to your point is, how do we use the blockchain the underlying technology to solve for that just to get into crypto in a very intentional strategic way that is going to work for our firm or our country? Because a lot of these conversations are happening at the country level? Do I expect comprehensive, comprehensive crypto regulation 2022 in the US, no. I expect some potential agreements, some frameworks, etc. But you know, not comprehensive this is what you do. This is the requirement type thing, some some general type of, you know, maybe

understandings, but no one’s getting out of crypto and many more asking how do I get into crypto? So people, it’s gonna be solved and in where it needs to be solved first, in my opinion, is the AML space.

Kayvan Alikhani

And near you know, looking at 2022 from a crypto perspective, what insights are you seeing and what contrast can you help us see. Given away your accent from EU and UK, eu at large versus the United States, what postures are you seeing there? 

Nirvana Farhadi
So look, I mean, you know, I agree with Rick, I don’t think we’re gonna really be seeing much in the US specifically. But I do want to in terms of regulations that tell you prescriptively, what you need to do and what you don’t need to do, because I’d like to cover the hearings last week that happened here in a moment, and then we’ll compare what’s going on in Europe. But look, since the ICO boom in 2017, I’ve really seen governments around the world beginning to kind of settle on different approaches to regulating the crypto industry. A lot of the decision makers and regulators have really proactively drafted new laws regulations, guidance frameworks for the crypto industry, and others use their kind of investigatory authorities and enforcement actions to regulate the industry. I expect that governments around the world are going to remain active, not just in 2022, this is you know, they’ve got a long road ahead of us. As crypto assets become more mainstream, and you’re going to see financial institutions that are offering crypto related services, they’re expected to assess address and mitigate the risks associated with these crypto assets. And that includes fulfilling as Rick mentioned, you know, their anti money laundering and combating the financial, the financing of terrorist activity, so AML and CFTC obligations. And it’s definitely been an interesting time in the US. So, especially in recent weeks, I mentioned, you know, appears suddenly that the US government’s become woke.

Unknown Speaker  31:48  

You know, it’s been around for almost 10 years now. But last week, the cryptocurrency industry executives here in the US, basically appeared before Congress to argue that their technologies really hold a lot of promise for the future. And the lawmakers and decision makers really are trying to wrestle how to bring the more than 2 trillion I believe it is, I think it’s around 2 trillion market under the government oversight hearing in the US. So the House Financial Services Committee, you know, held these hearings last week in hopes of really trying to improve the lawmakers understanding of crypto assets and how the sector fits into existing regulation. There was a lot of postulation that, you know, we want to be leaders in this space and what have you. But when I was listening to the hearings, they didn’t even know what an actual crypto asset was. So while millions of Americans have really been investing in crypto, a lot of people are saying that these asset classes need clear rules, obviously, down the road, and Congress needs to be able to provide that. I have to say something at this point, you know, a lot of the regulations that we’re facing a crypto is in its nascent years, right. So

Unknown Speaker  33:05  

the regulations we have with the set, you know, some of them are in the 1930s. And we’re still they’re still kind of, you know, guiding and governing what we do in the financial services industry here, that wasn’t set for the technology we have today. So we have to keep that in mind. And as we know, crypto has been

Unknown Speaker  33:26  

around for a while now. And it’s given a name given to a broad group of digital assets like Bitcoin. But here in the US, a lot of people are criticizing these assets has been volatile, opaque, and, you know, presenting risks to us as in the broader financial system. But the execs that were testifying last week, really arguing that it can make financial transactions faster, as you know, less expensive, more accessible to users around the world. I mean, I can buy my mother a crypto wallet for Christmas, right? So there’s a lot more of your Joe Bloggs is out in the street dealing with this stuff, whereas traditionally that that didn’t happen. So the industry really in my view has a potential to improve a lot of people’s lives. But there are risks associated to it. So

Unknown Speaker  34:15  

the aim of the testimonies again, and I’ll move on from this in a second was really to highlight the potential upsides of clipper crypto and the blockchain technology whilst in light of the dangers that were being highlighted, etc. The decision makers really worth thinking about the concerns around the lack of regulation that we’re seeing right now. So claiming that the markets really don’t have any overreaching or centralized regulatory framework and leaving investments in these digital asset space vulnerable to fraud, manipulation, abuse, but you know, that applies to financial services as we know it today. Right? So as we head into 2022, we’re going to be seeing the industry build out its lobbying presence.

Unknown Speaker  35:00  

specifically here in the US and in DC, and to really ensure that excessive regulation of cryptocurrency doesn’t push the technological innovation to other countries leaving the us at a disadvantage. So there’s going to be a lot of competition in that space. And regulators and lawmakers here are really working on that.

Unknown Speaker  35:19  

One of the areas that the execs, you know, were really concerned about last week was that the cryptocurrencies, as I mentioned, don’t really fit neatly within the existing structure of the US financial regulation, and that lawmakers should really consider tailor made lead legislation for the industry, although a lot say that, you know, the industry, the crypto industry wants to write its own rules. But like I said, it has to be done, because it’s still nascent. I’ve been saying this for years that we need to be careful how we regulate or have oversight of the sector, because cryptos are still in really early stages of development. They have a unique underlying technology, and the digital assets, trade in the markets that are fundamentally different from traditional financial markets. So as a result, the existing rules and regimes don’t support that and accommodate it. So this new tech, really, and decision makers have to get their head around the technology and be more informed in order to be able to put out the policies and infrastructure we need. So it’s going to be an interesting space to watch in 2022. And beyond in the US for sure. Specifically, I also want to mention something else, which is also happening. And you know, Rick mentioned its key, the AML side of the crypto markets is is in but this is very important. But there’s a massive land grab here and opportunity that’s happening, and that’s in the custody side of things. So for me, custody is going to be the Gordian knot of digital assets, holding custody of digital assets. Right. So we saw the excitement of the I think it was the first futures back Be Bitcoin ETF launched recently. And suddenly, the interest from the issuers went down once the problems with futures back products came to pass. But there is a huge, huge market appetite for exposure to Bitcoin spot markets, and the it’s a massive land grab for opportunities and solutions that are coming in but a year towards secure, compliant, integrated and efficient digital custody solutions that will also provide the necessary infrastructure. Layer two allow institutions to engage with digital assets directly. I think it was

Unknown Speaker  37:49  

Gary Gensler, I believe is this is named sec. Sec. Chairman. Anyway, don’t quote me on that comment said that, you know, the progress on custody,to protect against your keys being stolen or lost is key factor for mass consumer adoption. So, you know, there’s a lot of opportunity out there in this space, we’re seeing other countries, I mean, the US has just come to this right, and what the lawmakers, not the US financial services, but certainly, you know, those postulations about, you know, we want to be leaders in this and you know, we’ve we’ve got Europe doing this already people dabbling all over the world and in Korea, in Asia, for example, you know, it’s a lot more sophisticated market. And everybody in some shape or form is looking at it, I think the realization is dawning on regulators and decision makers that they need to have a better system and infrastructure for regulating this in place. And really, what I advocate for and I’m pushing for constantly is to not have stupid regulation, but to have smart regulation that really helps these innovative technology technologies rather than stifling everything. So that’s kind of my two pence word. But you know, we’ve got in the UK we’ve got brick coin, right, so everyone’s coming up with their own, you know, Dogecoin mongoose coin.

Unknown Speaker  39:17  

Right? Yeah.

Unknown Speaker  39:19  

Sorry, good. Yeah, no, go ahead. I was gonna say it’s huge. But as I said, you know, there’s a definite land grab opportunity here in the AML risk space for crypto solutions, as well as the custody digital asset custody space as well in a lot of what we’re going to be seeing a lot of solutions coming up. So, alright, well, in the interest of time, I’m going to move into the next topic really a good lead in based on the discussion we just had with nirvana. We brought up this transparency of the technology the ability to also regulate the technology so that both

At a federal state and international independent level, organizations are basically having a comfort level in terms of what they’re adopting. Whether it’s in the form of automation, or what companies like us do at compliance study, using purpose built models for the purpose of helping, you know, in our case, regulatory change management, but of course, in many other cases, algorithms that assist in loan processors or decision making, that are becoming more and more prevalent. So Rick, looking at that activity, what are we seeing in terms of regulations that are going to patrol technology? And what is being basically implemented organizations becoming more comfortable with AI based implementations? And what about regulators themselves as well?

Unknown Speaker  40:50  

The risk management associated with AI has always, I’ve always been very interested in I used to have oversight of model the models within one of my former FBI, so model risk management, this is kind of the, this is the next level of that.

Unknown Speaker  41:10  

And, predominantly, I think, what the risks are, to the big ones that I keep, keep coming up in conversations that I’m part of, are just in and Nirvana touched on this earlier, just kind of, you know, employee safety. So you know, if you have an AI on, let’s just say you have an assembly line, and you have AI robots kind of replacing what humans are doing. And hopefully those humans are upskilled into other

Unknown Speaker  41:48  

positions within the company, but you have this kind of, you know, physical safety, either the the people who are working around those machines, the end user of the product, you know, is what was the quality control on that. And then you have financial services in particular, you have potential discriminatory practices, and, and that’s actually across organizations. So you know, how you hire if you’re using AI to streamline or make more effective or not effective, actually more efficient your hiring process, you could be ingesting as data, some some really bad or poor HR processes that you have that then become embedded that kind of, even if you may not intend to do this, that kind of discriminatory, discriminatory practice becomes embedded, and then amplified through AI. But can your question so there’s a lot of AI, self regulation that I see trending more towards legal compliance. So to your point, the EU has established a framework. So again, not jumping right to full regs do this don’t do that, but a framework some structure to provide guidance in the US. I’m, I’m not aware of at the federal level, anything specifically under discussion, but not yet. Okay. Okay. Good. So I didn’t miss anything. But I do know, there’s papers by the likes of OCC and the treasurer and many others. Not in the form of regulations. Yeah, yeah. Yeah. No conversations. Absolutely. But, um, but 16 states have taken it up and and introduced, I believe, bills or legislation or resolutions in 16 states in the US. So the states are taking the lead here. And again, I think it goes back to, I’m taking more of an offensive position than a defensive position AI again, if you do it, right, it’s a competitive advantage. Um, if you do it wrong, it is massive reputational risk. So

Unknown Speaker  44:05  

that’s kind of what I’m seeing trending. And so I would see, you know, in 2022, more focused on this area with respect to managing risk. You’re absolutely auditability transparency when we did a presentation at the Global rec Tech Summit a couple years ago, and in London, that was top of mind, pretty much any financial services, CCO CRO that I was talking to, uh, continues to be the case show me how you made those decisions, provide a transparent path to the root of the decision making that verbiage and that type of basically requirement is coming through in the papers that it was referring to by US regulators and where that’s heading. Yes. Take advantage automation, yes, implementing AI based solutions, but also demand transparency demand explainability demand auditability you know, we see the

Kayvan Alikhani

The old name Facebook, I imagine now it would be referred to as the meta papers. So Nirvana, how does it relate to regulating technology? What what can we learn from the Facebook papers?

Nirvana Farhadi

When it came out? It was still Facebook’s. Right? And certainly regulating technologies isn’t gonna hurt, you’re gonna save your skin if you change your name, your cell phone company? Look, I totally agree with what you’ve both been saying what Rick said, you know,

I have been saying this for years, that the regulation of technology solutions is imminent. AI is, you know, a productivity superpower at the state that it’s in here. But there are lots of elements to it in terms of f ethical aspect of AI, what it actually does. So it says, it comes to me as no surprise that Europe has now got a framework that looks into AI, we will see regulation coming down the line. And to go back to the point and the question that you raised about Facebook, or meta and the papers that were leaked, tech companies have a massive, it might might not have been the case, you know, 1015 years ago, but they have a massive score and play that they make in financial services markets, they move their market movers, you know, they move our markets, if something happens, if they go down, millions of businesses are reliant on their platform. So when Facebook went down and have that outage, or those small businesses, you know, for half a day, their systems went down the papers that were leaked, in terms of how they used AI, and how AI was used to you know, incite hate speech and crime and or the election rigging and what have you that I’m not going to go into detail about that happened. You know, they didn’t have somebody monitoring that. Because at the end of the day, when you’re using AI, if you put garbage in, you’re gonna get garbage out. So, you know, I, my understanding was that there wasn’t even a team actually supervising this so that human intellectual capital was taken away. And this thing was just doing its own thing. So very interesting in that space, but regulation is coming for technology solutions, and tech companies, especially the big Tex, you know, Apple came up with all those patches that Rick mentioned yesterday, that showed a lot of vulnerabilities in what they have out there. And that’s scary. So they’re going to be under a lot more scrutiny, probably 10 years on from now the USA look at service, they’re slow on the uptake in mesh. I shouldn’t be mean. But no, because AI also represents the government’s advantage, right. So this is an advantage play for everyone it has it gives them leverage, and everybody wants to become superpowers in that space, and leaders in that space. So the there’s a heavy investment that’s going to go into that. But again, going back to my point that the smart regulation versus stupid regulation, the decision makers need to be informed about what the technology is. When I used to work for Hitachi, I used to bring everyone back to our offices, the regulator’s included, so they could get their heads around the technology, and then their decisions would be made more collaborative, informed. Exactly. So really, we will see that coming. It’s eminent, uh, you know, from ethics, you know, I don’t know if we’re gonna have a Hippocratic oath for developers, but certainly in the crypto space as well. We’re saying, you know, talk about, well, if this goes wrong, then who’s responsible for this? Is that the coder? Is it developer, you know? So there’s a lot of questions out there. Again, all of the things that we’ve discussed, it’s not just a 2022 trend visa, like for the next 510 years down the road, we’re gonna see a lot of evolution. Absolutely. And, you know, speaking of the evolution that’s happening when we organize this session and start talking about it with Ronjini, about Ronjini, about three months ago, I was going to start saying with COVID behind us, and it turns out that that doesn’t work today, unfortunately. So, you know, demand for business resiliency and continuity. Now having plans in the face of pandemics is becoming pretty much table stakes. And third, third party vendor management really requiring it. What do we see going into 2022? And also we, you basically touched upon the outages and that’s impact on a global scale. Everybody’s felt that are we going to see more of a regulatory oversight and regulations as it relates to Office

Unknown Speaker  50:00  

resilience or what are you anticipating going into 2022. And we only have a couple minutes left. So Nirvana, go ahead, please. Yeah, absolutely. So look COVID led to immense global disruption as we know, everything from working from home and you know, contacting your colleagues, et cetera. We’ve had to go online basically overnight when COVID hit right. So the impacts of almost two years of events that have been packed with debilitating

Unknown Speaker  50:34  

issues that we’ve had, you know, from the reality of remote working from education, to connecting with friends, and more, through all technology and innovation have really offered some solutions to us to continue some semblance of normality. The pandemic has exposed a lot of widespread vulnerabilities and I don’t want to you know, slap something to death, but we are not out of the woods with COVID yet, and our new norm is not, we’re never gonna go back, go back to the old world. This is the new abnormal that we live in now. So expose a lot of issues, we see an example for example, in financial services, you know, compliance officers, offices and teams scramble to manage and monitor remote employees that were spread across the world, regulators and governments were tightening restrictions. And the Tech had to really run at breakneck speed to keep pace with cyber increases sophisticated cyber hacking and criminals. And really 2021 was a defining year for the fight against cybercrime, fraud detection, security breaches.

Unknown Speaker  51:37  

But I think 2022 is going to be even more so you know, effective supply management improvements, improve business, continuity, planning, increased community engagements, have all kind of emerged as a rising priority for leaders across the board in this space, and if anything COVID Really put operational resilience in the spotlight for us forcing.

Unknown Speaker  52:04  

Yeah, exactly. So not only from an organizational leadership perspective, but also from a regulatory perspective. So for the first time, we’re seeing regulators mandating resilience. So as of March, I believe it’s the 31st of March 2022, the Financial Conduct Authority or the FCA in the UK, and the Prudential regulatory authority, pra in the UK will require firms to adhere to new rules around operational resilience. And the new rules and guidance cover a multitude of topics ranging from customer harm market stability, outsourcing reliability, which will mean that, you know, banks, building societies, designated investment funds, insurance funds, eMoney payment services, they have to firms have to be able to look beyond business continuity in their operations. Right. So operational resilience is not just specific to financial services. As we mentioned, with what happened with Facebook recently, we had another outage when Amazon, for example, especially in the world we have today, this is going to be more common. And it impacts all sectors. You know, I think back in the summer, we so fastly? Yeah, I know, we’re short on time, but you know, it’s, it’s here to stay. But actually regulatory mandates are going to be in place, and really, also an emphasis on third party suppliers. So if you’re outsourcing things, for your operational resilience to third parties, there’s certain measures that need to be put in place and frameworks that you need to adhere to. So I know we’re kind of running out of time.

Kayvan Alikhani

No, no problem, Rick. So looking at this challenge, and I think Nirvana laid out what you use doing a specifically in the US as it relates to financial services. What do you foresee going into 2022? And looking at some of the trends, including, I’m sure we’re going to talk about Apple a little bit here. Go ahead. Well, I’ll say I’m ready. I have a recommendation. I think Nirvana touched on the key points. And we came through COVID Financial Services in particular actually did quite well with respect to business continuity

Unknown Speaker  54:20  

during COVID Now, that doesn’t mean what what they had in place and then pivoted to work from home is what they should be doing going forward. Because Because I agree with nirvanic I so I see. A you know, operational resilience, business resiliency, absolutely. Yes. I have to use auditors examiner’s I don’t care if not a rag they ask about it. Um, and so my recommendation would be you take those processes if we haven’t done them already, and optimize them for your target state environment, whether it’s hybrid, what not, so that would be my recommendation. And then I also agree with you cave on

Unknown Speaker  55:00  

decentralize

Unknown Speaker  55:03  

workforce workforce, higher utilization of vendor company issued, you know, phones and or personal phones being used for company because we had to move to that. It’s all increasing cybersecurity risks. So cyber risk. So optimize your processes. Look at your cyber risk. Yeah, printers at home. Let’s not talk about that. Yeah.

Kayvan Alikhani

It’s another one, opening it up to another poll, and is, you know, this influx, hopefully, that you’re already have under full control of regulatory changes around various topics. Do you have a system that’s working for you? Maybe we can get a poll on that and give it a good 30 seconds while that’s happening.

Kayvan Alikhani

Yeah, so now here’s the results of the second poll seems like we have processes in place, but it needs improvement. That’s much better than a typical poll that we see on regulatory change management, which is fantastic. You know, obviously, at compliance study, I, we’re providing regulatory change management, specifically assisting in being in the know, and also being able to react to some of those regulatory changes that we just talked about around the various topics. And if there are no other questions, Ronjini, we can send the recording out for others and continue to answer questions online and afterwards as well. Right.

Compliance.ai Host

So thank you, everybody, for joining us. I know we had a pretty full discussion here at a look into the future preparing for compliance and regulatory trends in 2022. We will have this discussion on demand as Kayvan mentioned soon, so we’ll we’ll send out the link for that. If you guys have any questions or comments about the webinar, you can email us directly at marketing@compliance.ai. And have a great day. Happy holidays. And again, thank you for joining us. 

Kayvan Alikhani

Thank you, Rick and Nirvana by the way, I really appreciate it very insightful. Appreciate your time. Thank you. You’re so welcome. Thank you. Thank you.

Tags: AML/BSA, compliance, Cryptocurrency, cybersecurity, ESG, RegTech, regulatory trends