London, 12th June 2019 – Delta Capita, the international Financial Services consulting and managed services firm, has appointed Emerson Boix to lead the Securities Financing Transactions Regulation (SFTR) Test Consortium technical implementation.  He will be based at Delta Capita’s global headquarters in Canary Wharf, London.

Emerson brings more than 20 years’ banking experience ranging from the design of collateralised repo obligations for Barclays Capital to operational experience across corporate actions, dividends, recalls and collateral re-use at Citibank.  Emerson most recently worked on securities finance projects, defining target operating models in preparation for BREXIT and performing SFTR impact assessments.  In the last decade Emerson has worked on almost all regulatory changes from Basel II, EMIR and MiFID I to a global implementation of MiFID II for Bank of America Merrill Lynch (BAML) as their regulatory subject matter expert.

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James Proudman, Executive Director for UK Deposit Takers Supervision at the Bank of England, spoke on 4th June at the FCA Conference of Governance in Banking about the implications of artificial intelligence (AI) and machine learning (ML) on governance in banking.

Proudman told the audience that the governance of AI adoption is “a topic of increased concern to prudential regulators” since “governance failings are the root cause of almost all prudential failures” and that managing the associated risks is an increasingly important strategic issue for boards of financial services firms.

While Proudman made sure to highlight the potential benefits of AI applications in areas such as securities trading, anti-money laundering (AML), fraud detection and credit risk assessments, he stressed that as a prudential regulator, the Bank of England has a need to understand “how the application of AI and ML within financial services is evolving”, the implications on the risks to firms’ “safety and soundness”, and in turn, how these risks can be mitigated through the banks’ internal governance, systems, and controls.

Speaking in reference to a survey of AI/ML adoption in finance currently being conducted by the Bank of England and the FCA, he stated that there is general agreement that although AI and ML can reduce risks, “some firms acknowledged that, incorrectly used, AI and ML techniques could give rise to new, complex risk types”.

Proudman suggested that the retrieval, processing, and use of data may pose a significant challenge, pointing to three potential causes of data-related risk:

  • the expanding scale of managing problems related to poor data quality as data availability and sources balloon,
  • ethical, legal, conduct, and reputational issues associated with the use of personal data, and
  • distortions resulting from biases in historical data and assumptions built into ML algorithms.

His insistence on the “the need to understand carefully the assumptions built into underlying algorithms” and “the need for a strong focus on understanding and explaining the outcomes generated by AI/ML” sends a clear signal to firms to incorporate ML explainability tools into their model development and validation workflow. Directly applied on a ML model, such tools allow modellers and testers to understand both why any individual decision was taken and how the inputs to a model interact to make it work the way it does as a whole. ML explainability tools can also be applied after AI/ML is approved for use. As Proudman notes, governance has a role to play during the deployment and evaluation stages as well as for correcting erroneous machine behaviour. To ensure proper oversight, a ‘human in the loop’ can make use of explainability tools to support their decision in favour or against shutting down an algorithm, for example.

Proudman further proposed that regulations designed to deal with human shortcomings, such as “poorly aligned incentives, responsibilities and remuneration” or “short-termism” remain as relevant in an AI/ML-centric work environment and that it will be crucial to ensure clear individual accountability for machine-driven actions and decisions.

The implication that individual employees, including senior management, may be held responsible for actions or decisions taken by a machine reinforces the case for facilitating human-friendly model explainability. Boards should think about how the right tools best enable their workforce to comprehend the reasons for, say, a rejected mortgage application, and whether the model that made that decision did so because of built-in human biases. Since the person responsible will not necessarily be proficient in the language of AI/ML, it is crucial that these tools facilitate human-friendly interpretations and, in turn, informed decision-making.

Proudman also affirmed that he sees increased execution risks arising from the acceleration in the rate of AI/ML adoption and proposed that boards should ensure that firms possess the skill sets and controls to deal with these risks.

Boards should heed Proudman’s call to align their governance structures with the challenges of AI/ML. In addition to the obvious benefits to the business, having knowledge of what the models are doing and being able to explain how they work may prove invaluable when it comes to anticipating new rules for transparency and interpretability requirements of ML models.

Other related issues, such as data privacy, also have implications for corporate governance which can be addressed using AI/ML tools. As an example, sending human voice data to the cloud through voice-activated mobile applications may expose users to risks of illegitimate data use and can cause distrust in a firms’ data practices. To avoid this, model compression tools can be applied to reduce the size of speech recognition models and consequently allow voice data to be processed locally so that they never leave the device.

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Alexander Klemm

Consultant

Delta Capita

London, 9th May 2019 – Delta Capita has formed an industry working group to mutualise the costs of preparing for the Securities Financing Transactions Regulation (SFTR).

As part of the preparations, Delta Capita held various workshops involving 50 repo, stock lending and testing experts to agree on a strategy for SFTR testing.

The working group includes prime brokers and agent lenders and is in active discussions with the industry trade associations, service providers and trade repositories.

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London, 11 April 2019 – Jan Scibor-Kaminski, formerly Managing Director of Euromoney’s Structured Retail Products business, has joined financial services consultancy Delta Capita as the firm’s Global Head of Sales. Scibor-Kaminski is based in Delta Capita’s London office. 

“We are very pleased that Jan is joining our executive management team. His industry experience will help build a world-class sales and account management organisation that provides a differentiating client engagement experience,” said Joe Channer, Delta Capita’s founder and chief executive.

Scibor-Kaminski brings more than 15 years of industry experience to the management and technology consulting firm. Previously, he was a Partner at Neudata, a data intelligence provider for the financial services industry, and Managing Director of Euromoney’s Structured Retail Products business – one of the fastest-growing businesses within its portfolio – for which he had full P&L responsibility. During his 6+ year tenure, Scibor-Kaminski led the unit’s growth into a multi-million turnover business and helped the firm position itself as a data and analytics leader for the structured products industry.

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London, 18 March 2019 – Delta Capita, the international FS consulting and managed services firm, has hired Philip Freeborn as Group Chief Information Officer (CIO) to head its global technology advisory practice and lead the development of its managed service technology platform.

He will join Delta Capita’s ExCo and be based at their UK headquarters in Canary Wharf, London.

With more than 30 years’ industry experience, Freeborn has previously been Chief Technology Officer (CTO) and CIO at UBS Investment Bank and CIO at Barclays Investment Bank, responsible for IT and Operations for both the Investment Banking and Wealth businesses.

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Delta Capita, the international business & technology consulting and managed services firm, has announced a strategic joint venture partnership with JJCFinTech, a London-based FinTech consultancy specialising in KYC/AML, Regulatory, Tax and Compliance services.

Under the arrangement JJCFinTech has become a JV partner to Delta Capita’s KYC services business that was established last year through its strategic alliance with Fenergo, the industry leading Client Lifecycle Management technology provider.

The service curates the best CLM, robotic data sourcing, Screening, Analytics and Transaction Monitoring solutions in a coherent ecosystem. This avoids the huge investment and long lead time of banks doing it themselves. Our pre-integrated platform and managed service operations allow clients to quickly address the pain points in their KYC and AML processes to improve compliance, digitise the customer journey and optimise their operations and technology in a commercially attractive way.

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In this latest white paper, Edward Adcock & Thuy Nguyen (Data Science Consultants, Delta Capita) discuss machine learning model challenges, and introduces the Delta Capita DC MINT platform, which helps clients to address these challenges.

Click here to read the white paper in full.

London, 1st February 2019 – Ten months after striking a strategic partnership, Delta Capita has acquired The Field Effect, creating one of the larger specialised consultancies service providers in prime brokerage, securities finance and collateral management.

“The combined capabilities of both businesses creates a leading player in the market, at a time when the industry is experiencing unprecedented levels of change,” commented Joe Channer, Delta Capita’s founder and chief executive.

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London, 19th December 2018 – Delta Capita, the international FS consulting and managed services firm, has hired Tracey Allen to lead the client experience team for their KYC business line.  She will be based at Delta Capita’s UK headquarters in Canary Wharf, London.

With more than 15 years KYC industry experience, Allen most recently headed up the Client Experience team at Thomson Reuters, within their risk managed services division and prior to that, was an Executive Director within EMEA Client Onboarding at Goldman Sachs.

Earlier this year, Delta Capita and the industry leader in CLM technology Fenergo, announced their strategic partnership and their commitment to launch managed service solutions for solving client onboarding, regulatory compliance, and entity data management challenges.

Delta Capita, who recently ranked as Europe’s fastest growing FS professional services firm in the 2018 Financial Times 1000 index, has seen significant growth in its managed services solutions.  In 2017, Credit Suisse outsourced its EMEA structured products platform to Delta Capita, which now services several leading manufacturing banks.  In 2018, Delta Capita acquired Pall Mall, the non-financial risk and conduct advisory firm led by David Long, the former Credit Suisse EMEA Group COO, to spearhead a ‘first line of defence’ managed service proposition, which aims to significantly reduce control costs in the front office domain.

Allen commented “I am very pleased to be joining Delta Capita at such an exciting time.  They have achieved demonstrable success in establishing credible managed service propositions and are investing heavily in new services covering common banking functions and regulation such as KYC.  Their service model uniquely allows banks flexible access to industry best practice, expertise and modern technology, operated under a mutualised cost model.”

Allen added, “The economics no longer stack up for banks wanting to respond to common regulation in a proprietary way and I am convinced that managed service solutions are the only viable way forward for the industry.”

Joe Channer, Delta Capita, Founder & CEO, added “We are delighted that Tracey is joining our KYC managed services senior management team.  She is a recognised industry financial crime and client onboarding expert who will help us develop a service model that delivers a differentiating client experience.”

Tracey Allen

Many articles have been written and discussed on the Three Lines of Defence model. Some have theorised on its implementation and many have collectively discussed the challenges that organisations have faced, and a few have outlined why it may not be appropriate. However, that all said, the FCA’s 2017 review of Compliance found that all firms that participated in the survey had adopted the Three Lines of Defence model.

In this article, David Long, Charanpal Matharu and Nick Wilcock outline some key insights observed by the Non-Financial Risk Practice at Delta Capita. This may prompt organisations to review the effectiveness of their framework.

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