Finance Regulation Technology

The IIF 2nd Machine Learning Roundtable was held in Frankfurt on June 19 hosted by Commerzbank, and speakers Kerem Tomak (Commerzbank), and Farhaad Amod (Nedbank) join us to share their top takeaways (with Brad Carr, Natalia Bailey, and Adrien Delle Case).

FRT visits SEB CEO Johan Torgeby in Stockholm, to discuss Open Banking, Artificial Intelligence, advising new high-tech clients, and the emergence of Sweden’s cashless economy (with Brad Carr).

S&P CEO Doug Peterson joins us during the IIF Spring Membership Meeting & G20 conference in Tokyo. Expanding on some of the remarks he gave during the conference’s ‘C-Suite: Future of Finance’ panel, Doug discusses investments in innovative technologies, environmental management tools, and the necessary evolution of pension systems. Doug touches on innovation across payments and other industrial sectors in Japan, and elaborates on the investments that S&P have been making in machine learning and visualization and delivery tools. He also emphasizes the increased demand for data and analytics, including in the area of ESG, with an emerging emphasis on plastics. Doug also highlights the criticality of an institutional investment framework for economies, as well as the role for technology in helping to reduce investment costs.

FRT welcomes Dr. Bill Kahn, leading data scientist and financial modeling executive, formerly at Bank of America where he led the IIF Machine Learning Working Group throughout the last year. Bill joins us to discuss Machine Learning, demystifying key misconceptions in terms of its risks, as well as discussing the special complexity of interpretability. Bill also spoke on this topic at our recent IIF Digital Finance Symposium, the top takeaways of which were summarized on FRT Episode 37. Bill relates that while at times some of the technical details, like overfitting, heterogeneity, and independence can matter, generally those are not the big mistakes. Rather he equates the big mistakes in machine learning as fundamentally the same as the big mistakes of all multiple regression. Bill discusses overfitting and heterogeneity, before delving into the topic of interpretability, where he differentiates between “what a model is doing” versus “how is the model doing it”. The discussion also includes a view of the special concerns related to the use of machine learning. Previous FRT episodes can be found here, You can also now find FRT on iTunes or Apple Podcast, Google Play, Spotify, as well as continuing to be available on SoundCloud and the IIF website. Looking ahead, we will debrief the IIF Roundtable on Machine Learning in the Financial Industry, as well as discussing the emergence of Sweden’s ‘Cashless economy’ with SEB CEO Johan Torgeby.

The IIF 2nd Digital Finance Symposium was held in Washington on May 29, and speakers Annelie Schnaar-Campbell (Standard Bank), Gene DiMira (ManuLife) and Michael Brett (QxBranch) join us to share their top takeaways (with Brad Carr).

FRT welcomes Mark Zelmer, former Deputy Superintendent at Canadian regulator OSFI and author of the recent UK government report on Co-operative bank. Mark joins us to discuss Canada’s upcoming adoption of Open Banking, and some of the potential impacts in fiduciary duties and for banks’ liquidity. Mark relates Open Banking against the backdrop of consumer expectations in terms of deposit insurance schemes, and how this may impact banks, intermediaries and consumers alike. He also discusses the potential rethinking of LCR and NSFR assumptions, and the application of liquidity buffers amid new markets impacts on banks’ traditional funding bases. Mark also discusses the recent finalization of the Basel III standards, the current context of a low-interest rate environment, the evolution of bank strategies, and the challenges with data literacy throughout society.

Sarah Runge, Global Head of Financial Crime Compliance Regulatory Strategy for Credit Suisse, joins us on this week’s episode of FRT to discuss the benefits and challenges of applying Machine Learning in Anti-Money Laundering and Countering Terrorism Financing (AML/CTF). Sarah highlights the potential that enhanced analytics hold to strengthen the defense mechanisms against financial crime. Today’s framework and practices lead to inefficiencies that can make one lose sight of the bigger picture. However, we also explore how technology cannot (and should not) replace the human element and vigilance in a financial institution’s safeguarding measures. It should be seen as a way to empower analysts and focus their resources on the cases that need their attention the most. We also dive into the challenges institutions face when seeking to implement these techniques. The first is data integration challenges in legacy systems, especially for firms operating in a global environment, which are key to any successful initiative on financial crime prevention. The main challenge for global financial institutions, however, is that of data sharing. Varying rules across jurisdictions can lead to significant risks for the firm and the integrity of the financial system. Lastly, we also discuss how the implementation and execution of the global framework can be an opportunity to tackle these issues. We thank Sarah for agreeing to join us and share her expertise on this important topic, which has been one of the focus areas of the IIF’s work

Douglas Elliot, Partner at Oliver Wyman in the Finance & Risk/Public Policy practice, joins FRT to discuss the policy debate around privacy and consumer data rights, and the specific challenges for the financial sector. He was one of the lead discussants at the IIF Roundtable on the New Data Ecosystem in Paris last March, where he presented his work with the World Economic Forum on "Appropriate Use of Consumer Data in Financial Services". Douglas believes that, given the particularities of financial data, the sector – both public and private parties – should come together to look at financial data and the rules around it. This does not mean isolating financial services from the broader societal debate around privacy and consumer data rights. "There needs to be a two-way flow of information and ideas", he says. With countries around the world developing their own data regulations, Douglas sees common rules as "hard to get", but considers that agreeing on a set of underlying principles would be helpful to narrow the range of geographical divergences and reduce the damage from the fragmentation.

Rob Atkinson, President of the Information Technology & Innovation Foundation (ITIF), joins FRT to discuss the emerging “Techlash” reaction against technological change, and the impacts for current debates on data privacy and protection policies (with Brad Carr).

FRT Episode 32: 3D Printing & Trade’s New Paradigm by Institute of International Finance