The Canadian Regulatory landscape is multi-layered and quite complex making it difficult for RegTech firms to make sure they are building products that are compliant and sustainable. The CRTA have put together a reference paper to help firms understand what each regulatory body does and provide some insight and links to their 2020 strategic plans.
On January 16, 2020 we held our first sold-out event – Exploring the Art of the Possible – Trade Surveillance for Capital Markets. Many thanks to Deloitte Canada for graciously hosting and to Quantexa for their sponsorship. With the room filled to capacity, the morning started with a thought-provoking discussion, moderated by Sandra Persaud of Deloitte, among financial industry practitioners:
Loren Schwartz and Jason Le started by describing how their respective organizations are tackling trade surveillance. Using open-source technology is key to remaining agile. As Loren said, “the last thing we want to do is build another legacy system”. Realistically though, budget constraints can limit a firm’s ability to implement best-of-breed systems.
They also discussed the merits of in-house development: the ability to experiment, flexibility to adjust course as lessons are learned and rules change, and ultimately building “muscle” within the firm. As with almost every technology project, the challenge – especially for large organizations – is normalizing all the disparate data needed to be effective. As Jeff Harvie later pointed out, “you can’t do any of the fun stuff until you organize the data.”
In 2019 RegTech evolved from being an experiment to a reality. FIs realized that RegTech is a tool that fits into a well-defined, broader compliance framework and can help reduce compliance risks when coupled with the right data, people and processes. We also saw global regulators go on the record about RegTech and start to ask FIs questions about how they are leveraging RegTech and exploring SupTech* to manage their own processes. Investment in RegTech grew by 103% and it has matured to its own vertical. At the CRTA, we believe that RegTech will continue to transform Canada’s financial services ecosystem and will evolve into a necessary utility. We plan to continue to lead the conversation, drive strategic thinking and mobilize action. Here’s what some of our Board and Advisors predict for 2020:
CRTA 2020 Predictions
Following on the heels of the Client Relationship Model (CRM) – the largest regulatory reform the investment industry has seen – firms are now faced with another set of rules that regulators have designed to further enhance the client-advisor relationship – Canadian Securities Administrators (CSA) Client-Focused Reforms (October 3, 2019). For some firms it may feel as though they’ve barely had a chance to breathe before they tackle another set of client-facing reforms. Similar to CRM, which required substantial investment in technology and infrastructure to support new reporting requirements, it’s difficult to consider these reforms in the absence of the significant systems and technology investments that will be required for firms to comply with the reforms in a meaningful way.
For example, introducing a minimum time frame in which client information must be reviewed – at least every 12 months for managed accounts, within 12 months before making a trade for, or recommending a trade to, the client, where the registrant is an exempt market dealer, or at least every three years for all other account types – will require some firms to reconsider their account documentation processes to ensure, even in the case where changes are not required, that a systematic account review can be captured and appropriately shared with the client for review.
On November 27, 2019 the Canadian Regulatory Technology Association (CRTA) (Association canadienne de la technologie réglementaire (ACTR)) and KPMG co-hosted A Look into the Future – Emerging Trends and the Use of AI for Model Risk Management (MRM). Many thanks to KPMG for the ideal space, refreshments and hospitality.
The morning opened with a presentation by Mike McCausland of KPMG’s recent Global Model Risk Survey of domestic and global banks, which uncovered some very interesting (and perhaps concerning) trends, including that:
Panelists at the November 14, 2019 CRTA anti-money-laundering (AML) breakfast, sponsored by Norton Rose Fulbright, concluded that RegTech can help, but is not the full answer to AML woes.
Panel members agreed artificial intelligence and machine learning help distinguish signals from noise and more quickly identify true positives and avoid false negatives, but to be effective, there must be ‘good data’ and business partners must work together both to learn from the past and develop forward-looking tools. Rosalind Laruccia explained that “audit can be an effective sounding board when onboarding a new product or service and should not be feared or just seen as a once-a-year visitor and place to call in emergencies, but rather be engaged as an ongoing partner,”
Staff need to understand not only the data they most immediately use, but also the downstream impacts of any change across siloes so clients can be understood from a 360° perspective. Firms with cross-border operations have greater challenges, as different countries may label and understand fields differently or handle common problems in inconsistent ways. So testing is particularly important; in the experience of one firm, the results of data analysis identified hundreds of clients with a Jan. 1, 1800 birthdate – a case of incorrect data or no date available being handled in this manner? The KYC process must include entry, storage, testing/checking and retrieval so downstream users can verify data for logic, data can be correlated, and both structured and unstructured data can be managed.
AML Panel from L to R: Donna Bales (Co-Founder, Canadian RegTech Association), Navjit Singh (Senior Consultant, AML Analytics and Reporting, CIBC), Vishal Gossain (VP – Global Risk Management, Scotiabank), Daniel Leslie (Attorney, Norton Rose Fulbright), Rosalind Laruccia (AVP – Internal Audit, Laurentian Bank of Canada), Eric Brock (COO – PNC Bank (Canada))
To help drive our program for our members, the CRTA posed a question on our website: “What business problem are you trying to solve?” Responders were asked to select their top three issues from a range of options, including topical themes such as open banking, digital ID and compliance for evolving businesses (e.g. cannabis, cryptocurrency and robo advisors) along with more ‘legacy’ themes such as regulatory reporting and regulatory change management. Preliminary indications show ‘Compliance Effectiveness’ as the primary issue, followed by “Regulatory Change Management” and “Regulatory Reporting”. This seems to indicate that financial institutions continue to struggle with how to manage and measure their compliance programs.
On May 1st, The Canadian Regulatory Technology Association (CRTA) (Association canadienne de la technologie réglementaire (ACTR)) held a short event on the opportunities and challenges of emerging technologies to support sound conduct risk management. Jay McMahon, a partner in Deloitte’s Risk Advisory Group, led a discussion with Jody von Colditz, AVP – Wealth Conduct Risk & Sales Practices, TD Wealth and Greg Keeling, Director – Ethics and Conduct Office, BMO Financial Group.
Jay set the scene by highlighting several recent misconduct events such as: LIBOR (UK); Royal Commission (Australia); and Wells Fargo (U.S), which have led to legislative and regulatory changes across the globe to strengthen safeguards to protect against different forms of misconduct by market participants. Here in Canada, new consumer protection rules have been proposed through legislative proposals in Bill C-86, Budget Implementation Act, 2018, No. 2. The Canadian Securities Administrators have proposed enhanced rules for business conduct for derivative participants and Investment Industry Regulatory Organization of Canada (IIROC) emphasized in their 2018/19 Compliance Priorities Report that business conduct will remain a top priority in their supervisory oversight.