Global Trustee and Fiduciary Services News and Views Issue 50

Global Trustee and Fiduciary Services News & Views | Issue 50 | 2018 65 1 http://www.bain.com/publications/articles/banking- regtechs-to-the-rescue.aspx. Link here . 2 https://www.thetradenews.com/Sell-side/Banks-spent-close- to-$100-billion-on-compliance-last-year/. Link here . 3 https://gomedici.com/regtech-the-greatest-opportunity-in- fintech/. Link here . 4 https://jwg-it.eu/insight/mifid-programme-planner/. 5 https://www.bis.org/fsi/publ/insights9.pdf. 6 http://www.bis.org/review/r120315g.pdf. 7 https://regtechfs.com/regtech-council/. 8 Paul North, Head of Product Management EMEA, BNY Mellon and John Palmer, Senior Manager responsible for Enterprise Data Architecture at the Bank of England. 9 https://regtechfs.com/a-new-paradigm-for-regulatory- change-and-compliance/. Link here . 10 Santander, Credit Suisse, Hitachi Vantara, Grant Thornton, Lombard Risk, Model Drivers, Regnosys, JWG-RegDelta, Governor Software, law firms Linklaters and Burgess Salmon, academics from Yale, and the GRC Technology Centre at University College Cork. 11 Regulated Activity Group. A set of one or more regulated activities (with associated investment types and customer types) referred to in SUP 16 to determine a firm’s or other regulated person’s data item submission requirements. https://www.handbook.fca.org.uk/handbook/SUP/16/12.html. 12 Packin NG (Forthcoming, 2018), “Regtech, Compliance and Technology Judgment Rule”, Chicago-Kent Law Review. 13 Kontchakov, R., Rodriguez-Muro, M., and Zakharyaschev, M. (2013) “Ontology-based data access with databases: A short course.” In Reasoning web. semantic technologies for intelligent data access (pp. 194-229). Springer, Berlin, Heidelberg. 14 The Open Banking Standard available at https://www.paymentsforum.uk. integrated machine-readable and -computable regulatory, compliance and risks, and business and data knowledge base. This approach transcends that shown in figure 1 of having both a regulatory and business knowledge base. In this standards-based integrative approach, a business knowledge base contains business, compliance and risk vocabularies and rules. Nevertheless, if regulators or law firms begin to digitise regulations and laws, then having separate regulatory and business knowledge bases is unproblematic — that is, if they’re based on the W3C Semantic Stack. Developing an ontology layer for an integrated business knowledge base is the next step. The approach permits the disambiguation, extraction, integration and analysis of heterogeneous firm-specific data for regulatory compliance reporting and risk management — this approach is generally called data virtualisation or ontology-based data access (OBDA). 13 Capturing regulatory, compliance, risk and business semantics in a knowledge base is the essential condition of good data governance. An example here is the Model Knowledge Base (of corporate data) referred to in figure 1. Linking an ontology-based model knowledge base with a regulatory knowledge base and integrating both with business knowledge base can enable straight-through processing of regulations and automated regulatory compliance reporting of both financial data and non-financial data. Most importantly, it makes not only digital regulatory reporting a reality, but also digital regulatory compliance. Interestingly, industry bodies like the IFRS Foundation/International Accounting Standards Board are using semantic technologies and ontologies to make their standards and reporting XBRL taxonomies both human and machine readable. So too is SWIFT in its efforts to enhance its financial messaging standard (building on ISO 20022). The importance of semantic standards is also noted by the Open Banking Working Group, which argues that for the “Open Banking Standard to reach its full potential, common business semantics (i.e. the meaning and understanding of data) and data consistency must be addressed.” 14 Thus, a point of convergence may not be too far off. Accordingly, firms across the financial industry need to ensure that they’re in a position to capitalise on the very real benefits offered by semantic technologies for compliance and risk management, data governance and enhanced analytics. However, it is clear that the full benefits of suptech and regtech will only materialise if the pitfalls of adding to the prevailing Tower of Babel approach are avoided. Semantic standards are the key to all this. Glacial though it may be, progress is being made. Nevertheless, financial institutions need to ensure that regtech vendors offer standards- based solutions and avoid the proliferation of proprietary technologies that will, in the long run, only exacerbate existing problems. Professor Tom Butler University College Cork