21 minute read
The technology bringing sanctuary and surety to finance
Jean-Paul Mergeai,Managing Director of Temenos for Middle East & Africa defines the essential role of technology in compliance with regulations and risk management.
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Financial Crime Mitigation (FCM) technology is growing resulting from Covid-19, with heightened levels of fraud, including cyber fraud, as criminals exploit the pandemic. It’s a big problem for victims, for authorities and for banks, with their legal responsibility to protect their customers’ money and data and prevent money laundering.
As an organization, what are some of the most advanced innovative approaches to compliance risk management you have implemented?
In many areas of banking, cloud and SaaS technology is a catalyst for exciting innovations in compliance; lower infrastructure costs, developing products faster with greater resilience, scalability and security. This year, Temenos announced a joint effort with Microsoft to enable access to its AI-powered FCM SaaS solution. Deployable in weeks, it allowed banks to protect their customers and their organization from financial crime increases during the pandemic, particularly as banks moved to remote working for staff.
What trends in regulation and compliance do you see applying to financial institutions in the MENA region?
Th e b i g t re n d i s d i g i t i s a t i o n i n compliance, such as electronic customer identification. Banks are investing in the digitisation of their compliance function as an integral part of customer onboarding. In the UAE, national digital IDs operate, allowing banks and their tech providers to implement paperless “know your customer” authentication to accelerate on-boarding new customers. Initiatives like “smart Dubai” aim to remove paperwork entirely and provide the data on which to build better services for residents.
Compliance costs directly affect the profit of banks (estimated at $270bn per year) meaning devoting fewer resources to innovation and risk. Expenditure is unavoidable as compliance with regulations is mandatory. Governance, risk, and compliance account for almost 20% of banks operating costs and noncompliance has severe implications including stiff penalties. Over $350bn were paid out by banks for non-compliance and compliance breaches in the last decade. Temenos offers significant help reducing compliance overheads. We leverage our wide client base and extensive experience to offer packaged toolkits
Jean-Paul Mergeai, Managing Director, Middle East & Africa
and solutions to help our clients remain compliant with changing regulatory and business practice requirements. All the regulatory compliance solutions are pre-integrated into standard Temenos software, streamlining their adoption and subsequent usage.
Demand for financial compliance and the increasing levels and types of financial crime put huge pressure on banks. Legacy processes are complex, inefficient and error prone. High levels of false positive rates exacerbate this problem, increasing recruitment costs to address the issue. These challenges mean banks face reputational risk, fines, costs and losses to fraud.
A major regulatory opportunity (and challenge) for our industry is Open Banking. Having a system using AI, focusing on realtime behavioural analysis is essential. These systems build user and customer profiles to detect and stop suspicious transactions, considering elements such as transaction type, amount, currency and frequency. Parameters can be combined and compared to ‘usual behaviour’ or predefined patterns, elements giving banks the ability to stop suspicious transactions before funds are transferred.
How technology will increasingly manage regulation and compliance
Enacting regulation and compliance obligations is vital to businesses. Stephane Niango, Managing Partner, Arqitek, answers questions about the increasingly important role technology will play in helping financial institutions manage this important aspect of their activities.
It is widely recognised that COVID-19 has accelerated the move towards digital. Projects concerned with digital onboarding in particular are in abundance across the financial sector. However, the true meaning of digital remains poorly understood.
At a deeper level we are all witnesses to the emergence of the digital economy. The digital economy is driven by lower transaction costs and increased agility. In this context digital enterprises must look beyond front-end services transformation. The digital enterprise must transform across multiple domains to retain competitiveness. Governance / Risk and Compliance (GRC) is one of several critical domains to transform. It is critical because i) most financial institutions expend more 20% of resources in oversight of some form and ii) GRC is a certainly a major source of friction within the enterprise.
Stephane Niango, Managing Partner, Arqitek
The role of technology is therefore to automate compliance to such a level that the inefficiencies and the friction are taken out of the equation. This is entirely achievable today to the extent that regulatory requirements can now be electronically associated all the way through to operational implementation. C h a n g es i n re g u l a t i o n s c a n b e immediately traced to the operational level and non-compliances can be automatically highlighted.
This is all increasingly critical because markets and regulations will continue to evolve. Open Banking is taking form across the region. We also have Big Tech to consider and meanwhile cloud is helping everyone move faster. All these trends bring their own opportunities and challenges and imply regulatory evolution. So, compliance must move away from the traditional, paper-based approach to enable evolution.
We are performing work where we are driving automation all the way from compliance planning into operational platforms, including cloud platforms such as Azure. Imagine a scenario where regulatory requirements are immediately traceable through to the implementation of rules within operational systems. A change in a regulatory requirement can be immediately translated into changes to underlying platform configurations.
This concept is becoming increasingly viable as cloud platforms enable the
configuration of rules in accordance with compliance requirements. Using this and similar approaches changes can be promulgated across the enterprise to impact both manual and automated processes. The concept of the written standard operating procedures document is soon to be banished to the archive.
The challenges for the MENA region and other regions are in many ways similar. Digital transformation is an imperative for any financial institution anywhere on the globe. However, not all are responding to the true meaning of digital. Digital window dressing is taking place with new front-end services - but that is all. This is true in MENA but the same can be said elsewhere.
Regulators are recognising this and are encouraging the transition towards digital. Its important because global competitiveness depends on financial industry becoming digital. They are therefore placing a greater emphasis on Digital IT and IT modernization. This is being reflected in new regulatory requirements being directed towards the management of IT itself.
Other significant trends include the move towards Open Banking. MENA is some steps behind. However, central banks recognize the economic imperative behind Open Banking. Hackathons are already taking place under the sponsorship of regional banks. The standards and regulations to enable this new community are being formed.
Overall, we can expect to see an acceleration of the change already taking place. Truly Digital financial institutions should be pushing the envelope rather than being on the back foot. We suggest a firm drive towards Open Banking, cloud adoption and Digital IT Governance. Even if initial steps are incremental it is critical that the enterprise is actively exploring the digital future.
What type of ongoing monitoring and auditing processes have you put in place to assess t h e ef fe ct i ve n es s of yo u r compliance programs?
At this stage we are advocating a focus on compliance automation. If this is done correctly then monitoring becomes a lot less effort intensive. This is because the linkages are there, and reports can be automatically generated to expose gaps.
Once this is achieved then the financial institution can take a more forward-looking stance. Where are regulatory trends taking us and how do we get ahead of the market? The aim is really to establish the front-foot position. Control regulatory requirements before they control you! From there you are equipped to venture forwards to take on the new paradigms with greater confidence and awareness.
What do you see as the greatest challenges for the financial services industry in enforcing c o m p l i a n c e? A n d f ra m i n g these challenges would you do things differently?
The greatest challenge is around handling the complexity and doing so quickly. Manually translating multiple regulatory requirements (the ‘Why’) into process and controls (the ‘What’) and implementing them (the ‘How’) takes significant effort. Many banks are investing more than 20% of resources in oversight in some form or other. A holistic approach is required that is driven by data and that links to the underlying architecture.
Market changes are only going to accelerate as new paradigms come into effect. The benefits of cloud are only now being materialized in t h e M E N A re g i o n . O p e n B a n k i n g will generate a whole new plethora of market changes and evolutions. The pace will increase and so will the complexity. Financial institutions will be interacting digitally with an increasing diversity of actors. Service complexity will increase, and the implications of regulatory requirements will be
WE HELP ENTERPRISES TRANSFORM THROUGH THE PRACTICAL APPLICATION OF DIGITAL-ERA BEST PRACTICES. WE BELIEVE THAT THE DIGITAL ENTERPRISE MUST ARCHITECT TO BE SUCCESSFUL.
increasingly complex to resolve.
So, in many respects the future of compliance is about enabling agility. Regulation and compliance must move from the traditional, paper-based approaches to automated approaches that reach all the way through to operational platforms. Ultimately, we see the emergence of the enterprise control tower where the enterprise architecture, internal and external data are brought together to h e l p t h e e nte r p r i s e s e e n ew opportunities and to respond rapidly to those opportunities through agile projects and initiatives. A key input to the control tower is of course the regulatory requirements. We use the term Transformation Management Platform (TMP) to embody this concept. Here we are referring to the automation of transformation itself. Transformation on a continuous and automated basis.
Key developments in the regions’ compliance and regulation technology
Founder and CEO, of Aion Digital, Ashar Nazim offers clear answers to questions about compliance technology in the region.
Ashar Nazim, Founder and CEO, Aion Digital
COVID -19 has shown that social media hacks, data theft, banking fraud, AML and KYC have emerged as the most targeted regulator y and compliance risks areas. The technologies that can greatly assist in mitigating these risks are social biometrics, live facial recognition, dual-factor authentication, artificial intelligence, blockchain, cybersecurity frameworks, plus stringent technology standards policies.
Given changes to a work-from-homemodel, we must deploy technology and security controls for access m a n a g e m e n t , d a ta p r i va cy a n d malware protection and cybersecurity in general. Aion Digital has integrated Compliance and IT functions to help our employees and businesses function seamlessly and uninterrupted. Our internal infrastructure operates over the cloud with advanced compliance risk and threat management with active detection and alert mechanisms for our network including next-gen antimalware technologies and data loss prevention rules. We recommend the cutting-edge technologies mentioned earlier and further encourage clients to raise awareness with Cyber hygiene training as people are the weakest link in security and compliance chain.
There are 3 major trends in the MENA region that are matching or exceeding global expectations. • Establishment of national level e-KYC and compliance AML systems are bridging the gray areas where re g u l a to rs o p e ra te a n d w h e re institutions are required to conform to their policies.
• A growing reliance on AI driven c l o u d - b a s e d te c h n o l o g i e s t h a t support compliance efforts. AI threat matching is more efficient, low cost and sustainable in comparison to manual detection. • Internationally recognized AI driven compliance risk rating and scoring boards adoption, that learn by 3 core inputs; demographics, activities, and external data fetching to create airtight, constantly improving results mitigating risk and maximizing peace of mind.
Risk management is part of all projects across our organization with internal audits carried out on an ad-hoc basis. We also actively engage with regulatory bodies and key industry decision makers to test and accelerate the newest legislative digital initiatives within the financial industry. As part of the Central Bank’s regulator y requirements, we constantly refine the scope of our projects to fit within a
virtual framework without the burden of heavily regulated mandates using mitigated customer data. This allows us to assist our licensed clients comply with new local regulation on the role of data-play, authentications for customer consent, and contingency planning for
THE FINANCIAL SERVICES INDUSTRY IS GROWING AT AN EXPONENTIAL RATE AND REGULATORY AGENCIES MUST BE ABLE TO KEEP UP THE PACE.
cybersecurity risks.
W h a t d o yo u s e e a s t h e greatest challenges for the financial services industry in enforcing compliance?
The biggest challenge faced in the GCC is a lack of an effective regulatory ecosystem as seen in the EU. To foster an environment promoting digital innovation and financial inclusion, we need to do more than pass policies and rulings. There must be established a system of checks and balances, adopting tools to efficiently monitor, investigate and prosecute noncompliant activity within the financial services industry.
The financial services industry is growing fast, and regulatory agencies must be able to keep up. In future banks will be adopting new technology faster than before and telecommunication companies and goods retailers shifting towards providing financial services. Therefore, regulators in the GCC and the rest of the world will have to collaborate more with external stakeholders to be able to utilize their strengths while engaging with subject matter experts in recognizing and accommodating their limitations.
JERSEY • LONDON • DUBAI • MUMBAI • HONG KONG • SHANGHAI • NEW YORKJERSEY • LONDON • DUBAI • MUMBAI • HONG KONG • SHANGHAI • NEW YORK
A Future-Proof Investment A Future-Proof Investment Fund Platform forFund Platform for Middle East Middle East InvestorsInvestors
Over a period of almost 60 years, Jersey has Over a period of almost 60 years, Jersey has developed a well-respected and forward-thinking developed a well-respected and forward-thinking funds sector. funds sector.
In the first quarter of 2020, the total value of fund assets serviced In the first quarter of 2020, the total value of fund assets serviced in Jersey rose to reach a new record high of almost US$480bn in Jersey rose to reach a new record high of almost US$480bn with alternative funds, including private equity, real estate and with alternative funds, including private equity, real estate and infrastructure, showing stellar growth to now represent approaching infrastructure, showing stellar growth to now represent approaching 90% of Jersey’s total funds business.90% of Jersey’s total funds business. In a world where regulatory initiatives are making cross-border In a world where regulatory initiatives are making cross-border investing more complex, where private investors are looking at investing more complex, where private investors are looking at alternatives as they seek diversification as well as returns and asset alternatives as they seek diversification as well as returns and asset protection, and where family offices are increasingly disrupting the protection, and where family offices are increasingly disrupting the alternatives space, Jersey’s expertise is set to become increasingly alternatives space, Jersey’s expertise is set to become increasingly attractive.attractive.
By Faizal BhanaBy Faizal Bhana
Director, Middle East, Africa Director, Middle East, Africa and India, Jersey Financeand India, Jersey Finance
Jersey Private FundJersey Private Fund (JPF)(JPF)
Jersey’s forward-thinking approach has ensured the jurisdiction Jersey’s forward-thinking approach has ensured the jurisdiction remains at the forefront of the funds sector, for example in 2017 it remains at the forefront of the funds sector, for example in 2017 it introduced the Jersey Private Fund (JPF). The JPF offers a streamlined, introduced the Jersey Private Fund (JPF). The JPF offers a streamlined, effective and proportionate product for privately offered alternative effective and proportionate product for privately offered alternative investment funds. This fast-track regime has proven very popular investment funds. This fast-track regime has proven very popular among private investors and family offices in the GCC looking to among private investors and family offices in the GCC looking to co-invest and there are now more than 330 JPFs established.co-invest and there are now more than 330 JPFs established.
For more information, please contact a member of the Jersey Finance team on:For more information, please contact a member of the Jersey Finance team on:
+44 (0) 1534 836000+44 (0) 1534 836000 jersey@jerseyfinance.je jersey@jerseyfinance.je jerseyfinance.jejerseyfinance.je
linkedin.com/company/jersey-financelinkedin.com/company/jersey-finance youtube.com/jerseyfinanceyoutube.com/jerseyfinance @jerseyfinance@jerseyfinance
Global solutionGlobal solution
It’s a trend we’re particularly seeing across the Gulf region, a It’s a trend we’re particularly seeing across the Gulf region, a market where Jersey has considerable experience built up over market where Jersey has considerable experience built up over decades in supporting the private wealth structuring needs of decades in supporting the private wealth structuring needs of HNW and UHNW families. HNW and UHNW families. Those families are now looking at what the alternative investment Those families are now looking at what the alternative investment space can offer, and Jersey’s ability to provide a global solution space can offer, and Jersey’s ability to provide a global solution for alternative funds has put it in a strong position to support that for alternative funds has put it in a strong position to support that demand. Sitting within Europe, not part of the UK or EU, but with demand. Sitting within Europe, not part of the UK or EU, but with strong ties to both, Jersey is a stable, neutral international finance strong ties to both, Jersey is a stable, neutral international finance centre (IFC), with robust regulatory and legislative regimes, centre (IFC), with robust regulatory and legislative regimes, decades of experience, a commitment to high service quality, decades of experience, a commitment to high service quality, and one of the largest specialist workforces (around 14,000 and one of the largest specialist workforces (around 14,000 professionals) of any IFC.professionals) of any IFC. Market access is an area where Jersey can provide a particularly Market access is an area where Jersey can provide a particularly strong solution, making distribution easy wherever a manager, strong solution, making distribution easy wherever a manager, assets or investors are based.assets or investors are based. Jersey can act, for instance, as a gateway to the UK and EU by Jersey can act, for instance, as a gateway to the UK and EU by offering seamless access through flexible, cost-effective and offering seamless access through flexible, cost-effective and tried-and-tested private placement regimes – both now and tried-and-tested private placement regimes – both now and after Brexit. Indeed, the number of managers choosing Jersey to after Brexit. Indeed, the number of managers choosing Jersey to structure their EU-focussed funds in this way has grown year on structure their EU-focussed funds in this way has grown year on year. At the same time, Jersey’s close constitutional ties with the year. At the same time, Jersey’s close constitutional ties with the UK mean that it is well placed to offer access to the UK too.UK mean that it is well placed to offer access to the UK too. Beyond Europe, meanwhile, managers from markets including Beyond Europe, meanwhile, managers from markets including the US and Africa as well as the GCC are looking to future-proof the US and Africa as well as the GCC are looking to future-proof their funds through a jurisdiction that can offer them long-term their funds through a jurisdiction that can offer them long-term guarantees – and Jersey ticks that box.guarantees – and Jersey ticks that box.
StabilityStability
When it comes to fund structuring, the clear indications are When it comes to fund structuring, the clear indications are that investors in the GCC are looking for jurisdictions that can that investors in the GCC are looking for jurisdictions that can offer expertise, certainty and stability, with no regulatory, legal offer expertise, certainty and stability, with no regulatory, legal or economic surprises – qualities that have become even more or economic surprises – qualities that have become even more important in light of COVID-19. important in light of COVID-19. At the same time, as a forward-thinking jurisdiction, Jersey At the same time, as a forward-thinking jurisdiction, Jersey continues to evolve and embrace innovation.continues to evolve and embrace innovation. The launch of the Jersey Private Fund (JPF) in 2017 is a case The launch of the Jersey Private Fund (JPF) in 2017 is a case in point. It aimed to give small numbers of sophisticated in point. It aimed to give small numbers of sophisticated investors a vehicle offering quick regulatory approval, and investors a vehicle offering quick regulatory approval, and it has been incredibly popular – including among private it has been incredibly popular – including among private investors and family offices in the GCC looking to co-invest. investors and family offices in the GCC looking to co-invest. There are now more than 330 JPFs established.There are now more than 330 JPFs established. As demand for alternative fund solutions continues to rise As demand for alternative fund solutions continues to rise across the GCC, Jersey’s deep knowledge of the region, across the GCC, Jersey’s deep knowledge of the region, together with its stable platform, focus on service quality and together with its stable platform, focus on service quality and commitment to innovation is positioning it strongly to support commitment to innovation is positioning it strongly to support the bespoke needs of investors.the bespoke needs of investors.
UKUK
What sets Jersey apart?What sets Jersey apart?
JERSEYJERSEY
FRANCEFRANCE
Raising investor capitalRaising investor capital
Jersey offers a safe and familiar Jersey offers a safe and familiar business environment for European business environment for European investors across institutional, investors across institutional, high-net worth and pension high-net worth and pension funds,and meets the market access funds,and meets the market access requirements under the AIFMD.requirements under the AIFMD.
Regulatory frameworkRegulatory framework
Jersey has a strong regulatory Jersey has a strong regulatory framework built around framework built around governance, tax transparency and governance, tax transparency and compliance, which is recognised compliance, which is recognised by leading European countries.by leading European countries.
Speed to marketSpeed to market
Jersey has a straight forward and Jersey has a straight forward and flexible funds regime, allowing flexible funds regime, allowing funds to be set up in as little as funds to be set up in as little as 48 hours.48 hours.
TaxationTaxation
Jersey is tax neutral with 0% Jersey is tax neutral with 0% corporate tax, has no stamp duty corporate tax, has no stamp duty on the transfer of shares, and is on the transfer of shares, and is included on the OECD white list.included on the OECD white list.
