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Software giant IBM has announced that it is acquiring major financial consultancy Promontory Capital, which specializes in compliance, according to Finextra and The Wall Street Journal.
IBM plans to combine Promontory’s compliance expertise with Watson’s cognitive computing, or AI, capabilities to create a subsidiary called Watson Financial Services, which will be able to help financial services clients manage regulatory compliance.
This announcement comes on the heels of IBM CEO Gini Rometty’s comments at Sibos on Wednesdayregarding the need for major banks to be well positioned to pioneer AI adoption within financial services. The acquisition is due to close by the end of 2016.
Watson Financial Services will help firms with all areas of compliance — including the interpretation and implementation of regulation. Promontory staff will first “train” Watson in compliance, according to IBM. Watson will then continue to learn by continually processing new regulations as they are created, and by interacting with real-world scenarios. This will enable Watson to interpret new regulations and decide the implications, as well as implement required changes in processes.
These first two steps are particularly important if Watson is to help firms make their compliance efforts more efficient, as interpretation and implementation are typically the most manual processes. That’s because interpreting the nuances in new laws and introducing actionable steps for compliance have largely been beyond the capability of software — until now.
Regulatory compliance in financial services is a huge opportunity for IBM. From 2008 to 2015, the annual volume of regulatory changes went up by 492%, according to Thomson Reuters. And most existing compliance systems weren’t designed to handle the volume and complexity of the new requirements — as Watson Financial Services will be empowered to do.
This means that there is likely to be significant demand for its services among incumbents. IBM will also have an advantage over startup regtechs that offer similar solutions because it is a trusted brand and already has established relationships with many legacy players.
Financial services companies are struggling to keep up with a mountain of new regulatory and reporting requirements — and it’s only going to get worse.
From the 2008 financial crisis through 2015, the annual volume of regulatory publications, changes, and announcements increased a staggering 492%. That’s creating an opportunity for a swath of new companies called regtechs. Regtechs are companies that use technology to help firms decrease their regulatory burden.
Sarah Kocianski, senior research analyst for BI Intelligence, Business Insider’s premium research service, has compiled a detailed report on regtech that explains what’s driving the regtech trend and where the biggest opportunity lies. It also provides examples that show how regtechs are providing solutions to compliance problems.
Here are some of the key takeaways:
Regtechs can help in many areas of compliance. This goes beyond automating legacy processes and can include interpreting legislation, designing new compliance processes, and managing and processing data.
Large financial firms represent the biggest opportunity for regtechs, but they’re also well suited to help fintech startups.
Regtechs face a number of hurdles to achieving significant scale and success. These include competition in the industry, the challenges of international growth, and building trust with customers.
Implementation of regtech solutions will result in staff reduction. These technologies will augment compliance teams in the short term, but could lead to job losses among compliance professionals in the longer term.
In full, the report:
Defines what regtech is and the problems regtechs are trying to solve.
Highlights the advantages regtechs have over legacy compliance solutions.
Provides regtech company case studies.
Details the outlook for regtechs globally and the impact they will have on compliance teams.
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