[PPT] - The next frontier: An open source RegTech stack Bhavesh Desai Head PowerPoint Presentation

SLIDE 1

Bhavesh Desai Head of UI @ Adaptive

The next frontier: An open source RegTech stack

SLIDE 2

Who am I?

My history

Twenty years in the finance industry
Started as a developer, then architect, then project manager
Have worked at both vendors, and investment banks
Have spent much of my career building regulatory technology

What I do at Adaptive

Responsible for a portfolio of large-scale projects for our clients
Deliver programs of work across many functional areas
Delivered a major 1yr+ RegTech platform for a consortium of banks

2

SLIDE 3

Financial Services Software Consultancy

Agenda

This talk will be looking at three questions:

Why is there a problem?
What do we do about it?
How will we do it?

SLIDE 4

The next frontier

Why is there a problem?

SLIDE 5

Financial Services Software Consultancy

What’s the problem?

Building and operating RegTech is necessary. It’s also costly. ○ ○ ○

4]

General revenue spend[1]

10% 90%

Other Compliance

New build spend[4]

40% 60%

SLIDE 6

Financial Services Software Consultancy

What’s the problem?

Building and operating RegTech platforms needs armies of people.

○ Just three banks hired 6,600+ compliance staff in 2016[3] ○ One tier one American bank has 26,000 compliance staff[5]

SLIDE 7

Financial Services Software Consultancy

What’s the problem?

There are a lot of vendor point solutions.

Some are great - but onboarding and integration can be hard
This results in integration spend, and integration risk

SLIDE 8

Financial Services Software Consultancy

What’s the problem?

The expectations are immense.

One bank generates 50,000 pages for the ECB alone, each quarter[2]
Industry-wide, average 50,000 regulatory updates per year[3]

This is only going one way...

2018 MiFID II 2019 AMM8 SM&CR 2020 SFTR 2021 LIBOR 2022 FRTB BASEL III

SLIDE 9

Financial Services Software Consultancy

What’s the problem?

We don’t have the bandwidth to engage with emerging technologies...

Artificial Intelligence (AI) Machine Learning (ML) KYD, not KYC ?

SLIDE 10

Financial Services Software Consultancy

What’s the problem?

Big technology firms are starting to enter the market.

They don’t have large and fractured tech stacks
They don’t have two hundred year histories of acquisition
They don’t have decades-old old legacy systems

What they do have is determination, and deep pockets.

SLIDE 11

The Next Frontier

What are we going to do?

SLIDE 12

Financial Services Software Consultancy

What are we going to do?

As an industry, we have three possible futures.

we can be disrupted
we can be acquired
we can compete

Competing means focusing spend on areas that represent:

competitive advantage
differentiation
but not utilities
Wait. What’s a utility?

SLIDE 13

Financial Services Software Consultancy

What are we going to do?

A utility / commodity is something necessary, but not differentiating.

SLIDE 14

Financial Services Software Consultancy

What are we going to do?

What specific requirements do we have of this RegTech utility?

Needs to lower costs
Needs total transparency of implementation
Not ‘just another vendor relationship’
Needs to use an approach that enables efficient knowledge transfer and

co-operation between organizations

Should still allow for point solutions, in-house and from multiple vendors,

where they bring value

SLIDE 15

Proprietary point solutions Proprietary differentiating add-ons Financial Services Software Consultancy

What are we going to do?

Enter Open Source - with an Open Core model.

Vendor point solutions Vendor point solutions

SLIDE 16

Financial Services Software Consultancy

How are we going to do this?

It’s important to realize that this is not a silver bullet for costs. Companies that use open core still pay armies of developers to contribute to and maintain their open core solutions.

But. without doubt, they are smaller

armies.

7,700 Unique Contributors

Microsoft

5,500 Unique Contributors

Google

3,300 Unique Contributors

Red Hat

2,200 Unique Contributors

Intel

1,700 Unique Contributors

Facebook

SLIDE 17

So how about if one firm decouples its RegTech stack… ..and open sources it?

Financial Services Software Consultancy

What are we going to do?

01 02 04 03

SLIDE 18

Financial Services Software Consultancy

What are we going to do?

This is how all functional building blocks have been open sourced by the industry up till now. But it’s not going to work. It will be coupled across three dimensions: ○ Technical ○ Process ○ Operating model More importantly, what’s the incentive?

SLIDE 19

Financial Services Software Consultancy

What are we going to do?

What we need is a federated open-core model, driven and overseen by a committee of representatives, who all benefit in their own ways.

Buy Side Sell Side Vendors Regulators

Lowered costs Lower compliance risk Buy Side Lowered costs Lower compliance risk Sell Side Clear integration points Architecture for value-add Vendor Full transparency Easy small alterations Lower cost of entry Confidence in compliance Regulator

SLIDE 20

Financial Services Software Consultancy

What are we going to do?

So what we need to produce is an open source, and open core, regulatory tech stack, produced and driven by all four quadrants: ○ The buy side ○ The sell side ○ Vendors ○ The regulators But how?

SLIDE 21

The Next Frontier

How are we going to do this?

SLIDE 22

Financial Services Software Consultancy

How are we going to do this?

The good news: the industry has shown that it’s possible to collaborate successfully.

FDC3
TradeWeb
Many others...

SLIDE 23

Financial Services Software Consultancy

How are we going to do this?

To succeed, what would we need to agree on?

Where to start?

○ Regulatory reporting seems like a good candidate, right? ○ Standard-ish data goes in ○ A known process is applied ○ A standard outcome is expected

A standardized information model?

○ Dozens already exist. We can pick one.

SLIDE 24

Financial Services Software Consultancy

How are we going to do this?

To succeed, we would need to agree on:

A technology platform?

○ Much of the industry agrees on a few languages and platforms

Data security and privacy?

○ Again, there is broad agreement here ○ Many of these discussions are happening around the Cloud

A governance / operating model?

○ FINOS have already solved this problem

SLIDE 25

The Next Frontier

In summary...

SLIDE 26

Financial Services Software Consultancy

In summary

The problem:

Cost
Problems with point solutions
Increasing requirements
New entrants from BigTech

The solution:

Firms change their mentality about open source
Finance change their mentality about RegTech
We adopt a new federal open-core model

And everyone in the RegTech world supports this new utility - because they have the incentive to do so.

SLIDE 27

Many thanks for listening!

https://weareadaptive.com info@weareadaptive.com github.com/AdaptiveConsulting

@weareadaptive

SLIDE 28

References

[1] Melis, M (2018), Too much of a good thing? In Global Regulatory Outlook, Duff and Phelps, available online @

https://www.duffandphelps.com/-/media/assets/pdfs/publications/compliance-and-regulatory-consulting/global-regulatory

outlook-2018.ashx
[2] Mulder, J., (2019), Tacking Regulation with Innovation, The RegTech Book, Millennial Press, p.27
[3] Polites, J., (2017), Why RegTech is a booming industry, available online @

https://blog.atrivity.com/why-regtech-is-a-booming-industry

[4] Netke, S., (2019), RegTech and the science of regulation, The RegTech Book, Millennial Press, p.58
[5] Nonan, L., (2015), Banks push back over surging compliance and regulatory costs, available online @

https://www.ft.com/content/e1323e18-0478-11e5-95ad-00144feabdc0

28