Danos Group
24 May

In the week that Theresa May challenged health services to use Artificial Intelligence (AI) to pool medical data to identify the early stages if cancer, we take a look at how AI is impacting financial services and what it means for the future.

What it looks like now

A perfect storm of increasing cyber-crime and consequent regulatory requirements, competition, customer expectation, technological capability and access to data has seen an exponential rise in the use of AI.

The financial services are leading the way in applying AI in business. It is being used across all functions in areas such as assessing credit quality, analysing market impact for trading, predictive forecasting and automated client interaction.

In our world of Risk and Compliance AI is helping to make huge advances, especially in surveillance, screening, credit decision making and fraud detection. One of the most influential AI technologies is Rapid Machine Learning. This processes huge volumes of data from different sources (whether it be images, text or numerical) and is able to flag both regularities and irregularities that can highlight important opportunities and indeed threats with the capacity and speed way beyond human capability.

What the future holds

The era of AI is still in its infancy and smart companies have to embrace and run with the advancement in order to stay ahead of the curve.

Steve Culp, the Senior Managing Director of Accenture Finance and Risk Services predicts the pairing of Virtual Reality (VR) with AI such as robotics, natural language processing and machine learning to create an Extended Reality (ER) ‘where participants become part of a virtual eco-system and can interact and dissect data within their real-world field of view’.

This could see future Risk and Compliance Managers ‘walking through’ a 3D showcase of reports. Systems currently flag issues but it then falls to the compliance team to look at a range of other sources to fully identify the size and scope of the situation and ultimately solve the problem. ER would be able to pull every piece of information together (traders, locations, history, associates) in one place with easy to visualise graphical representation. Colleagues in other countries could even join the ‘environment’ for a closer level of interaction and discussion. The appropriate course of action still lies with the team but the information they need to make that decision is more thorough, timely and clear.

The pros and cons

While this technology aids innovation, protection and growth, it is in itself vulnerable. The vast layers of interfaces, devices and connections involved provide a greater surface area to be protected from cyber criminals and glitches such as the Flash Crash of 2010. Technological advancement increases the speed at which tasks can be executed but it also increases the speed at which risks can spread too. The constant progression will mean the extent of AI will always be in a kind of experimental phase with the associated risk.

There is also a threat of Big Tech using the knowledge they gain from banks’ use of their platforms and their own technological capabilities entering the market, putting a major strain on the competition. This would open up a whole other risk of the monopolisation of power.

Risk and privacy will always be at the core of the consumer’s needs and with critical data and money at stake the role of cyber risk management is complex. Building resilience to a rapidly evolving host of threats has to be at the core.

What this means for regulation

The rising use of AI challenges traditional risk management thinking. Regulators who have faced criticism in the past for reacting slowly to change, face the challenge of responding quickly to the disruptive nature of technological advances. We can certainly expect technology and cyber risk to take an ever increasing position in future regulation.

Financial services turning to AI to protect themselves from risk find themselves in a position where AI also puts them at risk. The speed of change means that the impact is difficult to measure and control and this unknown creates unease with regulators. A recent paper by Consultancy firm Parker Fitzgerald warns that this could result in regulators forcing banks to hold even more capital as a result.

Transparency is key. AI needs to be able to show regulators how and why they have made decisions. The visibility of the analytical processes and a human’s ability to understand it and participate have to be factored into their development.

Parker Fitzgerald also calls for ‘greater global coordination and standardisation’. The very disposition of technology and transactions know no borders so regulators are going to have to address how to provide a consistent international approach.

How will humans and AI work together and what does this mean for recruitment

AI is going to be part of our future and it will be able to fulfil roles currently undertaken by humans infinitely quicker and more thoroughly. This doesn’t mean we should prepare for mass redundancies making way for an army of robots.

AI’s ability to learn and adapt is impressive but the tools can only be as strong as the direction, data, instruction, checks, maintenance and upgrades they are given. For the foreseeable future at least, It is hard to see a world where humans won’t need to be the ones making decisions (outside of certain parameters) or checking them. They will also be needed to identify and guide what technology needs to be built to address new issues as they arise as well as being the ones who can offer a level of testing and fixing that sits outside of the potentially compromised technology itself.

It will remove more clerical jobs but pave the way for a new set of skills and roles. I recently attended an event where David Craig, President of Thompson Reuters made a prediction that in the next five years, half of all Chief Risk Officers and Chief Compliance Officers will have advanced academic backgrounds in data science and machine learning.

As the differences between what is working and what needs to be done differently become more apparent, firms are adjusting their workforce strategy. This is likely to include training, development, encouraging an innovative culture and partnering as well as new recruitment requirements. We can look outside of the financial services industry into the wider technology space with practical experience of applying machine learning techniques being a key requirement. This will see a new generation of talent and hirers will need to be mindful that there may be a shift in motivating factors that can attract and keep them.

To conclude

AI will only continue to evolve at an increasingly rapid rate and it is for us humans to shape how this technology can work in harmony with a newly skilled workforce to get the right balance of risk and reward for the benefit of society.

If you would like to add skills required for AI development to your team. Please get in touch.

rbh@danosassociates.com +44 (0) 20 3889 5757

14 May

The case of Mr Staley highlights a fundamental flaw in the status quo. The current approach allows firms to investigate and resolve concerns and complaints made against them; what could possibly go wrong?

 

The greatest hurdle to ensuring that complaints or concerns are adequately addressed and poor conduct is exposed is the clear conflict of interest that exists. In the case at hand, the FCA and PRA commented on Mr Staley’s personal conflict, suggesting he should have maintained an “appropriate distance”. The final notice suggested this included not involving himself in the investigation or putting pressure on the complainant. However, there is no clear definition of what constitutes an “appropriate distance” in this context. What distance is appropriate for a CEO who has overall responsibility for the firm and its staff including those who are tasked with the investigation? It is clear that any involvement or influence over proceedings by the subject of a complaint is unlikely to foster a sufficient level of confidence in those taking the difficult step to whistleblow or make a complaint, that their concerns will be adequately and independently addressed.

“He had a conflict of interest …, and should have taken particular care to maintain an appropriate distance from the investigation into it.” – FCA Final Notice – James Edward Staley

The largest firms may establish an “independent” function to investigate or oversee matters. However, how independent can it ultimately be with senior managers, who are responsible for the firm’s conduct, taking a keen interest in the outcome, albeit from an appropriate distance. Furthermore, given they are remunerated by the firm, it is difficult to see that full independence can be achieved, even if the will is there. In the case of smaller firms, they are unlikely to be able to resource an independent function and there, the conflict is even greater.

Whistleblowers or complainants can of course direct their concerns to independent bodies should the firm not address matters to their satisfaction, whether that be the Financial Ombudsman or the regulators themselves. However, the onus is firmly on the whistleblower or complainant to do so, and they may not be inclined to escalate, if they are concerned anonymity will not be maintained, or they just do not have the time or energy.

One possible answer would be to require firms to ensure they establish access to an external independent resource to act as the investigator or to subsequently review cases to ensure that concerns and complaints are investigated fairly and the objective of exposing poor practice and misconduct is achieved.  Disclosure of findings provided to regulators to enhance appropriate exposure.

Aside from the conflicts of interest there is of course another way to possibly tip the balance to ensure whistleblowers are more likely to report and expose poor conduct: financially incentivising whistleblowers as is the current practice in the US. In July 2014, the FCA and PRA determined that financial incentives “would be unlikely to increase the number or quality of the disclosures” they receive. This is despite the fact that in the US the number of whistleblower tips, as well as the US government’s recovery from corporate fraud have increased significantly since the whistleblower reward scheme was implemented. Meanwhile in the UK there has been a decrease of 37 percent in whistleblower tips since 2014.

K&E can help firms with their approach to whistleblowing and complaints handling.

K&E is a boutique regulatory, compliance, governance and risk consultancy with extensive experience of regulatory change for banks and investment firms. We can assist clients in their preparation and implementation of regulatory change projects or with day-to-day compliance solutions.

Please get in touch if you would like to discuss anything in this article or if you would like further information on our services. www.keconsult.co.uk

Written by our strategic partners K&E Consultants.

11 May

There is no denying that the country is split over Brexit and as our impending departure draws closer the costs and benefits of the economic impact are widely anticipated.

When it comes to the financial services, the movement of roles into the EU that we have seen could cause concern for the UK market but we are pleased to report a reversal of the initial Brexit trend. In fact companies are strategically building out their London offices. Here are eight reasons why:

1.      Small EU presence is enough

Businesses have worked out that only minimal on the ground presence is needed to retain an EU passport. Companies have rightly recruited into growing hubs such as Frankfurt, Dublin, Luxembourg and Paris but they only need a foothold, not a complete operational shift.

2.      The top talent is in the UK

Advances in technology and communication have meant that it is easy for global corporations to work as part of international teams.

Companies can hire based on talent alone, unencumbered by location and the infrastructure and talent pool quite simply are strongest in London.

With more recruitment in other countries levelling out the salary field, London is no longer seen as the expensive option, giving it an extra boost.

3.      London is still the continent’s financial hub

The underling global economy infrastructure is still in London.

BNP Paribas, ‘the bank for a changing world’ have recently announced the launch of corporate banking in the UK showing confidence they can gain from a move on the UK market.

We’re even seeing moves to London from places like Russia from companies seeking a stable political base.

4.      The global economy is strong

The global economy is good. There has been greater transactional demand for some time and with more business being done, more infrastructure is needed.

5.      Our regulatory scrutiny gives companies credibility

All eyes will be on the UK’s regulation when we come out of the EU so it will have to remain as stringent if not more so to hold out to scrutiny. Companies operating within the transparent and consistent framework can promote trust.

6.      Brexit has created jobs

Companies have rightly been preparing for potential impact in regulatory change which has created workload and consequently, hiring.

7.      The weak pound makes the UK attractive

Businesses that receive revenue from outside of the UK have found themselves in a more appealing position due to the weakening of the pound. The long view is that if more business is generated from the attraction of cheaper currency, more sterling is still brought home.

8.      Optimism

Some financial institutions, in particular smaller ones see Brexit as an opportunity to be more efficient with their compliance efforts. Their hope is that more tailored regulation will mean efforts won’t be forced on irrelevant policies and be relative to size and risk. This saving will allow them to price themselves more competitively against bigger players and ultimately remain in business.

Whatever happens, Compliance, Legal and Risk functions are going to be at the forefront of adapting to Brexit change. If you would like our support in getting the right team in place please get in touch.

Tel: +44 (0) 20 3889 5758

Mobile: +44 (0) 7989 969 482

Email: jlimburn@danosassociates.com

10 Apr

Last week saw the deadline for the first Gender Pay Gap (GPG) reporting. The new UK legislation required employers with 250+ employees to disclose the pay gap between their male and female employees and the results have intensified dispute around this issue.

The Results

78% of companies have been found to pay men more with women being paid a median hourly rate of 9.7% less on average than their male colleagues. The financial services had the second highest pay gap with a median company pay gap of 22%.

Interestingly, even nine out of 10 of the Times Top 50 Employers for Women (2017) have revealed that on average they pay women less than men.

The Office for National Statistics (ONS) were unable to take into account job demands so while this data does provide useful comparisons, it isn’t able to give validation that men and women are being paid the same for the same work as per the Equal Pay Act, 1970.

Lots of companies are citing having a higher number of males in senior roles skewing their average figures as a reason for their imbalance but this in itself highlights a key issue. It shows that there are more women in lower paid roles while males dominate the boardroom.

Compliance is Bucking the Trend

This got us thinking and we decided to do some research of our own. At the end of last year we reported that women were ‘leading the way in Compliance’ and despite the financial services’ shortcomings in these results, over 60 percent of our Compliance placements from AVP to Global MD continue to go to women.

Our position also gives us insight into salaries across the market and we pleased to report that there is very little disparity in pay between the sexes in Compliance, far from the 22% of the rest of the industry.

With inspirational women at the helm of major institutions such as Credit Suisse, Goldman Sachs, HSBC, BlackRock and Barclays in Chief Compliance Officer roles, we are sure Compliance will continue to be a stronghold for equality.

A Global Perspective

With offices in London, New York, Hong Kong and Singapore, we can take a global perspective and are pleased to report that the high number of women in Compliance and equal pay extends beyond our borders.

In New York, they’re tackling the GPG with their Salary Disclosure Ban. This forces salaries to be based on the role alone and for women, protects them from any previous inequality or impact from taking time out to have a family. Many of our top clients in the US have had robust diversity programmes for a few years now and invite us, as the people responsible for recruiting their teams to attend ‘diversity awareness’ meetings which is something we wholeheartedly support.

Making a Difference

A company’s GPG has to be published on their own website as well as gov.co.uk. This widespread availability has led to difficult questions from employees, poses potential issues for future hiring and crucially can influence customer choice so it has been a real motivating force to see a greater change.

We’ve seen companies set targets, run programmes to attract female talent and take steps to ensure there is no bias in the recruitment process but the real challenge is ensuring women can remain in successful and balanced careers. We are supporting our clients who are having open discussions about the barriers to this and creating paths to an inclusive culture for everyone.

We’re seeing moves within banks towards more flexible working, job-shares and working from home already and we know the world is watching. Smart companies realise that equality in the workplace isn’t just about being fair. There are a huge number of talented women in the marketplace and studies have proven that diverse working groups are more successful to which there is a real commercial benefit.

We have a very clear view of the success that comes from matching the person to the right role and this is based purely on talent, experience and fit. If you would like support in strengthening your team with a recruitment specialist that has an unparalleled network of talent, please get in touch.

+44 (0) 20 7371 8332 dspearman@danosassociates.com

03 Apr

Alongside Compliance, financial crime and anti-money laundering (AML) have been the fastest growing areas in financial services. Financial crime has recently gone through an extensive period of new legislation across investment banks, private banks and asset management but we are hearing from our clients that this is set to change.

There will be less new legislation and more focus on how effectively it is being implemented.

Regulators are going to be rigorous in their efforts to ensure everyone is adopting strong Anti-Financial Crime (AFC) controls, putting personal liability at stake.

The knock on effect has meant that firms are:

Getting more ’tec’ focused

Responses to financial crime have to evolve with the progressively complex and sophisticated attacks and this relies on ever advancing technological solutions. Firms are striving to get the most efficient technology in place as a means of managing the huge costs of fighting financial crime. Transaction monitoring and data analytics are key areas set to benefit from technological development.

Fin Tech companies have a real opportunity here to use their technology to be part of the solution. As Blockchain gains momentum, the use of digital identity technology and Biometrics could have a real impact on preventing and detecting financial crime.

Utilising data analytics more than ever

As technology expands rapidly across the financial services, it brings with it more data and more opportunity to find answers within it.

The emergence of data lakes also gives analysts further scope for data based detection and prevention of financial crime.

Adopting a more sophisticated use of Artificial Intelligence

Machine learning techniques are being applied to anti-fraud models and surveillance is ramping up with more sophisticated voice surveillance and trade monitoring to protect against market abuse, anti-bribery, anti-fraud and corruption controls.

Being more collaborative across the industry

Onus has spread beyond banking, looking to insurance, asset management and private wealth management to play significant roles in a conjoined effort against financial crime. The Joint Money Laundering Steering Group (JMLSG) introduced last year will support sharing best practice across all of the financial services.

Honing in on specialists

We’re seeing an upsurge in clients moving away from generalist roles and looking for dedicated financial crime and AML subject matter experts (SMEs).

Understanding this shift and the impact it has on a team’s requirements is where a company with Danos Associates’ expertise and unparalleled network of financial crime professionals can really add value.

If you’re looking to enhance your financial crime programme by bringing in the right skill-sets and experience, Danos Asscociates can deliver on both a permanent and consultancy basis. To discuss your hiring needs please give me a call.

+44 (0) 20 7371 8332 dspearman@danosassociates.com