Technology, Innovation and the Changing Banking Landscape 技术、创新和银行业格局变化 James Lew Technology Director Corporate & Investment Bank J.P. Morgan

Agenda

Robotics & Machine Learning 机器人技术与机器学习

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Robotics is best considered as a spectrum of intelligent tools ranging in complexity, that automate a variety of operational activities that humans currently perform, whilst minimizing the changes required to the core technology platforms.

What is Robotics? 什么是机器人技术？

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Simple Complex

Robotics Process Automation Virtual Assistants / Machine Learning

Enables sophisticated activities through complex rules Automates simple and repetitive tasks, with high fidelity

Task Bots Meta Bots IQ Bots

Can mimic human actions to help automate manual, repetitive and time consuming business processes. Task Bots are ‘best at’ rules-based tasks that rely on structured data.

Can do everything that a Task Bot can do, but they can also be extended for complex, multi-system dependent processes.

Can integrate with cognitive components. IQ Bots are ‘best at’ managing through fuzzy rules and recognizing patterns of semi-structured data.

……..through deployment of BoTs across various stages of complexity continuum

Robotics can increase efficiencies and free up resources 机器人技术可以提高效率、解放资源

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Robotics Process Automation – Overview 机器人流程自动化 - 概览

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• Processes that are structured,

repeatable, error prone and have

fluctuating volumes

• Processes for which the cost for the

existing workforce to perform is high

• Criteria of ideal candidates are listed

below

Ideal Candidates for Automation

Criteria for Bot Automation 机器人自动化标准

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Simple Complex

Robotics Process Automation Virtual Assistants / Machine Learning

Predictive analytics solutions

Faster payment processing rates and

greater accuracy

Increase scale that gives the ability to react to change more quickly

Improved forecasting accuracy

Better decision making

Operational Efficiency

The robotics program is already delivering 机器人计划已经开始显现成效

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Nimble /Agile Response Ease Migration Process

Increase Operational Efficiency Improved Controls &

Accuracy

Benefits

Digitization

Benefits of Robotics 机器人的优势

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Increase Operational

Efficiency

Support selected clients’ processes to increase client efficiency

Ease Migration Process

Provision of customized reports for clients to ease migration to JPMorgan

The implementation of robotics in JPMorgan has benefited our clients

Example:

Regulations in Thailand requires client to report all transactions above USD50,000 to the local regulator through a manually generated FX form.

Robotics has allowed JPMorgan to generate these forms on clients’ behalf automatically

Example:

A Japanese client requested for a customized statement template that will minimize change impact on their ERP systems and reconciliation processes

Robotics is leveraged to interface with various systems to prepare the statement

Nimble/Agile Response

Relatively fast turnaround time to requests/regulatory changes

Example:

Due to changes in Malaysian FX rules, the Bank is required to convert a percentage of a export proceeds to local currency at a short notice

Robotics is able to reduce the time to market, thereby allowing JPMorgan and Clients to be compliant with the changing regulatory requirements

Benefits of Robotics 机器人的优势

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Digitization Utilizing OCR capabilities to automate traditionally manual processes

Example:

Human effort was required to manually transpose transactional information in PDF for a specific clearing in China

Robotics is leveraged to accurately read, capture and transpose the information from PDF into JPMorgan’s core systems

Improved Controls & Accuracy

Automation of selected manual processes to improve accuracy and reduce human errors

Example:

A client sends payment instructions with the purpose code in a non-standard field and needs an extended period to enhance their ERP system.

Robotics is used to automatically identify and amend the instructions to increase turnaround time and negate human errors

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The implementation of robotics in JPMorgan has benefited our clients

Benefits of Robotics 机器人的优势

Machine Learning offers even greater potential to transform our businesses

…conceptually modelled on the human brain

… automating more sophisticated work bringing greater benefits

Neural Networks

Natural Language

Processing

Classification & Prediction

Translation Services

Pattern

Recognition

Unsupervised

Learning

Machine Learning

Neurons connected through Axons to human cells

Multiple nodes connected by links to imitate the biological neurons of human brain

Today Manually review hundreds of unique contracts

~ 360,000 hours per year

Tomorrow

Near real time results

Machine learning will enable processing beyond human scale

Structure of a Neuron

Structure of Artificial Neural Networks (ANN)

Contract Intelligence (COIN)

Machine learning 机器学习

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Agenda

Blockchain 区块链

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Cryptocurrencies Distributed Ledger

Type of digital currency in which encryption logic is used to regulate the generation of currency and verify the

transfer of funds

Smart Contracts

A distributed database introduced with Bitcoin which records a

continuously growing transaction block with inter-linkages

Self executing computable contracts residing on Blockchain which can verify fulfilment of conditions and

execute contracts

Focus area for banks and financial institutions is Blockchain as a Distributed Ledger and Smart Contracts

Regulatory purview of Cryptocurrencies is still not clear. Possible emergence of crypto-currencies as settlement or exchange currencies in the medium to long terms

BlockChain: Cryptocurrencies, Distributed Ledger & Smart Contracts 区块链：加密货币、分布式总账技术和智能合同

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What is a distributed ledger (blockchain)? 什么是分布式总账技术（区块链）？

A blockchain is:

A data store 1

Holding a log of transactions (events) 2

Replicated across a (public or private) distributed network 3

Using cryptography & digital signatures to determine valid parties and transactions 4

Such that everyone agrees on the order and state of the ledger in real time 5

Without having to rely on a trusted third party to hold the true “golden copy” 6

With a practically immutable, verifiably true audit trail 7 A blockchain is an immutable and consistent transaction protocol and data store shared by all nodes of a distributed network

Once recorded, transactions cannot be practically altered, and every copy of the ledger has the same record of the transactions made

Consistency is achieved by a consensus mechanism (mining or another algorithm), a process in which a majority (or in some cases all) of network “validators” come to agreement on the state of a ledger

Transactions are recorded as changes to the ledger, adjusting the assets and obligations of the participants in the network

The network can be completely open (public) or open only to known counterparties (private)

Centralized

Decentralized

Distributed

Distributed Ledgers allow network participants to share a single golden

record without relying on trusted intermediaries or a

central authority.

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A synergy of existing, proven technologies 与现有的有目共睹的技术产生协同效应

Cryptographic hashing

One-way encryption generating a unique finger print for any piece of data

Public key cryptography

Identity-based encryption preserving privacy in a distributed network

Distributed networks

Scalable infrastructure creating a network of equal peers with no central authority

Byzantine fault tolerant consensus mechanism

Algorithm allowing participants to agree on the current state of the ledger with no central authority

Public Key Private Key

Centralized Decentralized Distributed

A database with special properties

Impossible to alter historical records Comprehensive audit trail E-sign every step in a transaction

No data silos Standardized data Regulatory transparency

Robust network resistant to attack Simpler disaster recovery

Can be used to record transfer of digital (tokenized) assets

Prevents double spending of tokens

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Key Features Implications

Reduced need for a trusted third-party

Trust in the veracity of ledger data is maintained by the technical protocol itself, without reliance on an external governing authority

Distributed information

Operational risk due to IT failure or cyber attacks is reduced

Prevents double-spending

Ownership of tokenized digital assets can be recorded on a distributed ledger such that it is possible to verify uniqueness of the asset

Consistent and auditable

Distributed ledgers house all transactions within one standardized network since inception

Customizable

Smart contracts can be used to model complex business logic and asset classes while maintaining verifiability of asset class specific standards

Permissioned ledgers can capture all these features while limiting participation in the network to known entities only

Potential for new, efficient, global transaction processing systems without central authority

Middle office processes can be simplified and further automated

Efficient, near-instant value transfer

Real time settlement reduces risk and frees capital for more efficient allocation

Improved data transparency and audit trails

Transactions records and logs can be accessed by clients, control functions and regulators in a streamlined process

Minimization of systemic risk due to single points of failure

Information is evenly distributed and accessible, with modern encryption standards and better data standardization

Transparency and immediacy

Transactions can independently be verified at any point in time

Distributed ledger technology has the potential to fundamentally change:

The systems, processes and infrastructure used to exchange, settle and record financial transactions

The scope of assets available for investment, trading and custody

Key features and implications of Distributed Ledgers 分布式总账技术的主要功能和意义

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Business

The promise of the blockchain 区块链技术前景广阔

Reduced risk, cost & complexity

Potential for new markets

Fast transfer of value and assets without a trusted

third party

Reduced

settlement time

Cryptographic trust and enhanced

cybersecurity

Simplified, more robust technical

architecture

Reduced effort to achieve

regulatory compliance

Opportunities for supply chain optimization

Improved disaster recovery models

Improved

liquidity

Same version of the truth between all participants

More universal encryption of stored data

Operations Technology

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Business

The promise of the blockchain 区块链技术前景广阔

Reduced risk, cost & complexity

Potential for new markets

Fast transfer of value and assets without a trusted

third party

Reduced

settlement time

Cryptographic trust and enhanced

cybersecurity

Simplified, more robust technical

architecture

Reduced effort to achieve

regulatory compliance

Opportunities for supply chain optimization

Improved disaster recovery models

Improved

liquidity

Same version of the truth between all participants

More universal encryption of stored data

Operations Technology

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Business

The promise of the blockchain 区块链技术前景广阔

Reduced risk, cost & complexity

Potential for new markets

Fast transfer of value and assets without a trusted

third party

Reduced

settlement time

Cryptographic trust and enhanced

cybersecurity

Simplified, more robust technical

architecture

Reduced effort to achieve

regulatory compliance

Opportunities for supply chain optimization

Improved disaster recovery models

Improved

liquidity

Same version of the truth between all participants

More universal encryption of stored data

Operations Technology

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Public views Poll: How disruptive will blockchain technology be?

“…one of the most disruptive innovations since the advent of the Internet”

-- McKinsey, “Beyond the Hype: Blockchains in Capital Markets”

“… a truly new way to organize financial transactions and information... ”

-- Oliver Wyman, “Distributed Ledgers in Capital Markets”

“… industry hype has been unprecedented, but also generally uncoordinated up to this point…”

-- DTCC, “Embracing Disruption”

“… many challenges need to be overcome. This will take not only years but hundreds of millions if not billions of investment dollars…”

-- Tabb Group, “Blockchain Clearing and Settlement: Crossing the Chasm”

Meaningfully disruptive

Important, but Modest Change

Too Far Away to Care about

A Fad

I Don’t Understand Blockchain

Potential applications

E-commerce & Manufacturing

Trading Platforms

App Development

Authentication & Authorization Healthcare

A Smart Contract IT portal executing order fulfillments

Digital security trading for ownership and transfer

Proof of ownership of modules in app development

Provides digital identity that protect consumer privacy

Decentralized patient records management

Source: Autonomous December 2015 survey

Source: GrowthPraxis

Market views and potential applications 市场观点和潜在应用领域

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Potential Blockchain applications within J.P. Morgan 摩根大通内部区块链技术潜在应用领域

In-flight efforts

Internal Network Payments (In-house)

Interbank network payments

Single-Name CDS Settlement (POC completed Q1 w/ Axoni)

Equity Derivative Swap Settlement (Axoni)

Securities Settlement / Custody and Servicing (Digital Asset)

Syndicated Loans (Digital Asset)

Analysis (in no particular order)

Trade Finance

Repo

Interbank Clearing

Commodities

Corporate bonds

Collateral Management

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Overview Benefits

A new1 service offering–enabling any J.P. Morgan account holding client to remit funds to any other J.P. Morgan account holding client:

In real-time

For any supported currency

At any time

365 days a year

From any J.P. Morgan location to any J.P. Morgan location

1 2017+ new build

J.P. Morgan’s overall network position

International representation in 32 countries

Account services in multiple currencies

Providing FX in 120+ currencies

Current settlement process

Settled within prescribed cut-off times

Subject to third party bank deductions or charges

No confirmation of settlement to creditor

Settlement delay

Limited reference data J.P. Morgan Network Payments Opportunity

Real-time payments within J.P. Morgan Network across 32 branches

Internal Settlement across distributed ledger network

No Clearing/Correspondent timing restriction

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LONDON

FRANKFURT

BEIJING

TOKYO SYDNEY

NEW YORK

TORONTO

JOHANNESBURG

Client benefits

Near real-time settlement across entire J.P. Morgan Network

24 / 7 / 365 processing window

End-to-end track and trace transparency

Any J.P. Morgan supported currency

Elimination of third party bank charges or deductions

Reduced transaction fees Settlement assurance

Use Case – J.P. Morgan Network Payments 使用案例–摩根大通支付网络

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Use Case – Interbank network payments 使用案例– 银行间支付网络

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L O N D O N

F R A N K F U R T

B E I J I N G

T O K Y O S Y D N E Y

N E W Y O R K

T O R O N T O

Correspondent

The Current Landscape Multiple participants for each transaction

Reliance on Correspondent Network

Clearing time restrictions

Lack of transparency

Distributed Ledger Network Payments Real-time transfers within a Distributed Ledger Network

Multi-bank participation

Reduced intermediaries

No requirement for trusted third party

Clearing

Correspondent

Distributed Ledger Network

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Our vision for the payment ecosystem

We anticipate continued applications beyond Network Payments

The technology may affect entire payments financial architecture in the future to provide additional benefit for clients

Implementation will requires industry cooperation, regulatory acceptance and additional testing

Banks, central banks, payment regulatory bodies and infrastructure providers performing R&D to understand implications

Build a domestic payments prototype for inter-bank obligations (for domestic and international banks operating in Singapore) using the Singaporean Dollar ($S) and DLT and backed by central bank deposits – Singapore will be the first financial market in Asia to achieve this and the Singaporean dollar will be the first Asian currency to be put on a distributed ledger

Build a DLT platform and internal capability for MAS and market participants in Singapore as a precursor to tackling two key business challenges – cross-border payments and cross-border securities–in a later phase of work

Test whether DLT can improve on the properties of the MEPS+ system in terms of: Efficiency – Can operational efficiencies be driven in the Singaporean domestic payments systems Resilience – Can the resilience of the overall systems be increase to reduce the risk of overloading due to high volume, misrouting or prevent security

breaches

Explore impact of immediate, deferred and deferred net settlement and settlement certainty on operational and counterparty risk

Use Case – Project Ubin (Singapore)

Distributed Ledger - beyond network payments 分布式总账技术- 除支付网络外

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Blockchain industry-wide impact timeline

2026+ Oliver Wyman –’10+ years before mass adoption’

Citi – ‘10+ years before majority of processes move to Blockchain’

2025 Morgan Stanley – ‘assets to proliferate onto Blockchain’

2022 Santander / Oliver Wyman – ‘infrastructure costs in x-border payments, securities trading & reg compliance to fall by $15-20B’

2021 Autonomous Research – ‘$16 billion cost savings and $6 billion of capital release at Investment Banks

2020 Morgan Stanley – ‘shared infrastructure will emerge beyond initial PoC groups’

2018-2020 DTCC Conference Participant Poll ‘Industry scale production-ready pilot of a major process’ – 60+%

2020-2025 DTCC Conference Participant Poll – ‘Major impact on securities settlement’

J.P. Morgan view

Technology Development: Resolution of critical technological challenges (e.g., scalability, privacy, latency) in 2-3 years

Ecosystem Development At least 5 years before DLT solutions dominate operating model/ market structure (i.e., >30%) in a major asset class, due to competing

models & nascent standardization >7 years before regulatory & legal frameworks sufficiently address blockchain / DLT to enable mass adoption

Internal Solutions: Likely to start emerging in 2-3 years

Roadmap 发展蓝图

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Q&A

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问答

Disclaimer

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This presentation was prepared exclusively for the benefit and internal use of the J.P. Morgan client to whom it is directly addressed and delivered (including such client’s subsidiaries, the “Company”) in order to assist the Company in evaluating, on a preliminary basis, the feasibility of a possible transaction or transactions and does not carry any right of publication or disclosure, in whole or in part, to any other party. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by J.P. Morgan. Neither this presentation nor any of its contents may be disclosed or used for any other purpose without the prior written consent of J.P. Morgan.

The information in this presentation is based upon any management forecasts supplied to us and reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change. J.P. Morgan’s opinions and estimates constitute J.P. Morgan’s judgment and should be regarded as indicative, preliminary and for illustrative purposes only. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us by or on behalf of the Company or which was otherwise reviewed by us. In addition, our analyses are not and do not purport to be appraisals of the assets, stock, or business of the Company or any other entity. J.P. Morgan makes no representations as to the actual value which may be received in connection with a transaction nor the legal, tax or accounting effects of consummating a transaction. Unless expressly contemplated hereby, the information in this presentation does not take into account the effects of a possible transaction or transactions involving an actual or potential change of control, which may have significant valuation and other effects.

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