Welcome to our Q&A mini-series with some of the experts who featured in our recent Future of Banking Report. First up...
Evgeny Likhoded, founder and chief executive officer, ClauseMatch
Can you tell us about your platform at ClauseMatch and how you are working with banks?
EL: Where we're coming from is how banks and other regulated industries address regulation from the point of view of internal documentation. Whenever there is a change in regulation, the implementation of that regulation involves a lot of people. The implementation usually comes down to writing new policies and procedures, or updating them, and then communicating them to the employees. After that, you need to be able to show to the regulator that a policy, procedure or an internal risk control which is related to a particular regulation or an obligation has been implemented properly, communicated to employees and then checked for effectiveness. We help them with the full workflow of implementing regulations through internal policies and procedures and ensuring compliance with those regulations.
So how does your technology work?
EL: What we built at the core of the platform is the capability to work and manage internal policies in real time, and keep the full audit trail, so there is full enterprise workflow and collaboration. You can have hundreds of people working on the same document in different roles. For example, let’s take anti-money laundering policy. Document ‘owners’ are making changes, then they have other people contributing with comments, and then they have ‘approvers’ who approve this document. So year after year they need to carry out a review of this document and keep the audit trail which they can provide to the regulator. That’s the core of the platform. But now as we have all of that data in the form of structured documents on our platform, plus all the comments, we are using AI algorithms to link particular parts of documents to the regulatory obligations or internal controls. That helps to build the map of regulatory obligations, how they are addressed through internal policies, and how they are checked for effectiveness through internal controls.
How does this compare to the old manual way of doing things?
EL: While the rest of the world has already moved into digital, the financial industry is only starting to embrace innovation. Using outdated methods when working with documents creates gaps and silos where information gets lost or is not used properly, putting organisations at high risk. These disconnects between the units managing risk and compliance become crucial, especially when we are talking about large global financial institutions functioning across many jurisdictions. All the important information, which is critical to a company keeping its business operating, is still managed through countless documents that are sent around the organisation to various departments, divisions and even across jurisdictions, creating issues with the audit trail, proper governance and often causing more confusion than benefit to the organisation. With the near-constant regulatory change, regulated institutions have had to employ many more compliance professionals, but this is still not the solution. New reality requires new technologies. When it comes to creating a more cost-effective, automated regulatory compliance solution, it's the obvious way forward.
How much of a challenge is it to work with banks’ legacy infrastructure?
EL: That very much depends on the individual bank. We actually see the biggest problem which holds back the adoption of innovative technologies is not in the IT infrastructure itself but in the culture of financial institutions and a reluctance to embrace the change which is now becoming a must-have and imperative for further development and success.
What banks are you working with?
EL: We have currently been working with global banks. Traditional, such as Barclays, and also challenger banks, such as Revolut. And also we graduated successfully from the Lloyd’s Lab 10-Week Accelerator programme where we were able to show that ClauseMatch is applicable to the needs of the insurance industry as well.
What are the big compliance themes that are going to impact the banking sector in the coming years?
EL: In recent years we've seen that regulators have looked at the particular failures of banks, so things like insider trading and money laundering. But we are now seeing sizeable fines for failures in conduct, and conduct is primarily communicated to employees via policies and procedures, and enforcement of those. That’s ultimately what we help banks with.
How do you see the regtech industry developing over the next five years?
EL: The regtech industry is growing at a prolific rate. According to RegTech Analyst, investment in regtech companies has reached record levels just in the first six months of 2019. That’s almost four times as much invested in the entire industry in 2014. As regulation requirements rise, and data and reporting requirements increase sharply, it will become more and more crucial for banks to streamline the compliance process with the help of regtech.
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