IBM’s cognitive computing platform Watson is now able to help financial institutions meet regulatory requirements around anti-money laundering (AML) and know-your-customer (KYC).
The tech giant has today launched a number of new regtech (regulatory technology) solutions, including Financial Crimes Insight with Watson, which applies cognitive computing, intelligent robotic process automation, identity resolution, network analysis, machine learning, and other advanced analytics capabilities to help banks spot financial crime.
It forms part of the company’s first-generation cognitive solutions trained by experts from Promontory Financial Group, a compliance consulting firm that IBM acquired last year with the aim to expand into the regtech space.
The companies have since been training IBM’s Watson to crunch complex legislation and manage financial risk and compliance, and IBM has already delivered two solutions in the area: one around regulatory change management, helping banks understand and address new regulations as they are created, and the second around surveillance.
The aim of the new financial crime solution is to speed up case investigations for AML alerts and dramatically reduce the amount of false positives – red flags that turn out to be innocent – generated by today’s transaction monitoring systems. In a recent interview with GTR, Marc Andrews, vice-president at IBM’s Watson Financial Services Solutions, explained:
“As we get into transaction monitoring for anti-money laundering we see that most organisations are struggling in that they generate a lot of false positives through their current transaction monitoring approaches. Most organisations end up filing an SAR (suspicious activity report) for only 1 to 2% of all the alerts that are generated. That means you have a 98% false positive rate.”
The solution, which can be deployed on the IBM Cloud, will also assist banks with meeting their KYC requirements by streamlining and accelerating customer due diligence activities, including customer verification and adverse news collection – activities that are often done manually.
It is hoped that Watson’s capabilities will enable banks to utilise their staff for high-value critical business decisions, rather than mundane busy work.
“One of the banks I’ve met with said that today, 50% of three compliance analysts’ time is spent just collecting and aggregating information,” Andrews said. “25% is spent going through, analysing and making a decision. The rest is spent on documenting what they did, generating the evidence, filing it and completing the reports. These capabilities can dramatically impact both the first and third category, so they can spend more of their time and devote more resources to doing the more in-depth analysis and decision-making.”
Watson’s new skills come at a time when banks are in desperate need of solutions to address a regulatory burden that is only expected to grow in coming years – while also curbing with the rapidly rising cost of compliance.
And there may be high savings to find, according to players in the industry. FortyTwo Data, an AML technology company, has calculated that banks are squandering £2.7bn a year on chasing false leads – costs that could be saved by using new technologies like machine learning and big data. The company said that on average, 55% of false positives can be eradicated with modern regtech solutions, accounting for 42% of banks’ cost on AML compliance.
IBM and FortyTwo Data are just two of many companies that have entered the regtech space over the past couple of years, as the interest from banks and venture capitalists have grown.
According to estimates by the International Regtech Association, around 700 regtech companies exist globally today. The worldwide regtech industry body was recently launched to innovate and advance regulatory technologies across the financial services sector.