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Leveraging Cognitive Technology Capabilities for Risk & Compliance

Grace BrasingtonVice President, Global Banking and Financial Markets, IBM Risk & Compliance Cognitive Solution

June 2018

2

Annual Spending on Regulatory Compliance

$160B+

$ 99B

Approaching

$270Billion

Regulatory fines

and sanctions

Costs of addressing

compliance

+

3

Opportunities to Improve Regulatory Compliance with Cognitive

Regulatory Change

Management

Know Your

Customer

Anti-Money

Laundering

Conduct

Surveillance

Address constantly changing regulations and manage control requirements more effectively

Streamline customer due diligence and remediation activities

Enable more effective identification and investigation of suspicious transactions

Identify potential misconduct more effectively

Training Watson on

obligation identification

& tagging

Assisting with solution design, providing IP

accelerators based on customer engagements &

PRR BPO, applying processing expertise

Guiding expansion

beyond trade to broader

conduct issues

+

4

Providing End-to-End Regulatory Compliance

Capture Regulatory Changes & Obligations

Define Policies, Procedures& controls

Assessments of Controls & Risks

Monitoring & Testing

Cognitive Processes Transformation

FinancialRisk

Know YourCustomer*

Anti-MoneyLaundering*

ConductSurveillance

Security &Cyber risk

Governance, Risk, and Compliance

PaymentFraud

5

Regulatory Compliance Analytics

Licensable components:• Regulatory Analytics – based on Watson Cognitive Computing• Regulatory Library – a reference library of regulations, guidance and controls• Regulatory Compliance Management (RCM) – a control, governance

and visualization platform based on IBM OpenPages

Watson enables effective determination of controls required & assessment of internal control coverage

IBM Cloud Customer Environment/Infrastructure

RCA RCM

Desired Controls

(Imported from RCA)

Regulations

Other Good Practice Controls

Client Desired Controls

Good Practice

Controls &

Frameworks

ControlsObligations

Candidate Obligations

Validated and Tagged

Obligations

Existing Controls

(can be imported

from GRC)

Validation & Tagging

UI Components UI Components

Client Selected

Controls

Linked

+

Watson Regulatory Compliance for Regulatory Change Management

Review workflow is

triggered

With WRC’s capability to integrate all data, facilitate mapping, and perform concept-search across federated

platforms, the solution can enable a transparent, actionable Regulatory Change Management Process

… and see the end-to-end

impact and resolution of the

change

Change Comes InNew or updated

regulation or a regulatory

event, such as a speech,

comes in.

Notifications TriggeredAll owners in the effected

compliance chain are notified of

the applicable change.

Legal RequirementsLegal SME interprets legal

requirements.

Compliance GapCompliance Lead identifies

potential compliance gaps.

RespondImpacted object owners

respond to compliance

committee and either an

action is taken to remedy gap

OR an issue is created

TrackProgram lead tracks

the issues through its

lifecycle.

6

7

Conduct Surveillance with Cognitive

Go Beyond Rules Take Holistic Approach

Leverage behaviors and machine learning toproactively identify abnormalities and potential

misconduct without pre-defined rules

Integrated analytics, focused on total conduct across activities and channels. Provide

a 360o view for understanding Trader and Employee behavior

Machine LearningBehaviorProactive

ActivityeComms

VoiceTrade

URL: Understand, Reason and Learn

+

8

Surveillance Insight for Financial Services

Fuse insights to detect suspicious activities

View linkages with instant drill-down & playbacks

Build employee profileswith personality & behavior traits

See alerts & investigationsfrom continuously updated risk models

Order

Trade

Execution

Reference

News

Social

Email

Chat

Voice

Reduced cost of employee non-compliance & misconduct

Faster detection of sophisticated scenarios

Risk based prioritization of alerts and reduced false positives

Transactions

Communications

External

Su

rveilla

nce

Correlates across channels, applying cognitive & machine learning to proactively identify abnormalities and potential misconduct

+

9

Impact of eComm on Collusion

+

10

Applying Cognitive to Accelerate Due Diligence

Due Diligence

with Watson

Automated SearchAggregation of

External Insights

Entity Assessment

& Verification

Reduce compliance costs and enhance client on-boarding information and negative news reviews by using cognitive-powered robotic automation to streamline due diligence processes and ongoing screening requirements

Customer Risk

Rating System

Internal and

External Data

Financial Crimes Due Diligence with WatsonUtilizes cognitive computing technology to screen, extract, and link relevant content from structured and unstructured data sources to improve understanding of entities and related risk and dramatically reduce the time it takes to complete KYC activities.

Expand Here Expand Here Expand HereStart Here

Collect Customer

Information

Customer

Due

Diligence

Customer

Risk Assessment

Onboarding

Decision

Review & Refresh

Customer

Information

Enhanced Due

Diligence

+

11

Applying Cognitive to Improve Alert Management

Accelerate alert investigations by using data from historical cases, better understanding entity and network risk, and applying experience-based machine learning

Financial Crimes Alert Insight with WatsonUtilizes data from historical cases, better understanding of entity risk, and machine learning capabilities to streamline thealert triage process, reduce false positives, accelerate disposition of alerts, and improve decision-making.

Expand to Here Expand to HereStart Here

Alert

IdentificationAlert Triage

Research &

Investigation

Disposition

DecisionSAR Filing

Transaction Monitoring

Systems

Alert Insight

with Watson

Aggregate Data to

Expand Observation

Space

Interpret & Prioritize

with Machine Learning

Based on Prior Cases

Streamline Research,

Reasoning &

Recommendations

AML Case Management

+

12+

We believe AI’s purpose is to augment human intelligence.

We will be transparent about when and where AI is being applied, and

about the data and training that went into its recommendations.

We believe that our clients control and own their data and the related

insights

We are committed to helping students, workers and citizens acquire the

skills to engage safely, securely and effectively with cognitive systems,

and to do the new kinds of work that will emerge in a cognitive economy.

Principles for Trust in the Cognitive Era