Thomson Reuters Regulatory Intelligence originally published this article on 21/12/2017.
Thomson Reuters Regulatory Intelligence speaks to important figures in the compliance and financial arena to hear their thoughts and discuss wider issues related to their fields. Today we talk to PJ Di Giammarino founder and CEO of regulatory think-tank JWG–IT, trusted by the global financial services industry as experts in regulatory change management. A former coder and banker, for the past decade, he has led a team of independent analysts who have helped the industry interpret large quantities of regulatory reform and action it in a smart and intelligent way. PJ serves as the International Organisation for Standardization Secretary for the FinTech Technical Advisory Group and is Chair of the Committee to Establish a RegTech Council.
Which part of your job gives you the most satisfaction?
I enjoy leading a think-tank because it gives me a chance to create great connections with financial institutions, their regulators and the technology that underpins the industry. Whatever the gauntlet thrown down by politicians the ‘human machinery’ in our industry mobilises to find solutions. I love it when people on opposite sides of the fence realise that they can win by collaborating and am most proud when we help the industry shape the problem early and get to a better, faster, cheaper and safer solution through collaboration.
What part of your job gives you the most frustration?
As a former COO of Technology at a large bank, it pains me to see the billions wasted on outdated and ineffective approaches to managing regulatory change. Spending money on big brands because nobody got fired for relying on their advice doesn’t make it right. At the other end of the spectrum, hiring an army of contractors and expecting them to leave sustainable solutions with corporate memory is like pouring money down the drain. Thank goodness the next generation of RegTech-enabled managers is rising!
What are the most significant forthcoming developments that you are concerned about, or you think the financial services industry should be concerned with?
Over 18 regulatory programmes were in implementation mode in 2017. They asked the industry to restructure the way it trades, how it manages risk, the way it spots untoward behaviour and perhaps most importantly, how it manages its systems and controls. Some of these programmes are more critical than others, but it is the scale, pace and complexity of declaring your controls ‘compliant’ that worries me most. Most of the difficult control hurdles emanate from outside the US – the UK’s SMCR and EU’s GDPR ones that push the boundaries the most – but the infrastructure in the US needs to comply with them.
A survey we ran this year revealed that 41% of senior management loses sleep over the data in their institutions. As senior managers are held more accountable for what they know, do and sign-off, they need to come to grips with how their firm runs more than ever before. Not only are the penalties high, but increasingly personal.
Which international regulatory development causes you the most concern?
With a nod to Donald Rumsfeld, they are the ‘known unknowns’. In a ‘normal’ political reality we would now get our heads down and remediate the regulatory implementation issues that we haven’t been able to address in the last couple of years, while deploying new technology to solve the upcoming challenges.
Unfortunately, a protracted Brexit, US tax and rule book revamp and the EU elections could well put up walls between trading centres that prevent the sector from creating global solutions and fragment the infrastructure. In actual fact, this development might force more rapid adoption of RegTech as technology will need to help fill the knowledge gap and manage the complexity in time to meet political deadlines.
Why should compliance officers be interested in RegTech?
The facts speak for themselves. We now have had over 70,000 documents describing regulatory change since the Pittsburgh Summit – and the rate of updates has doubled in the past three years. MiFID II is over 1.5 million paragraphs and we have spent $36 billion implementing Dodd Frank to date.
The real question is: how can compliance officers sleep at night without good RegTech? The businesses they oversee have complex regional and global business models and neither markets nor customers stand still. RegTech will help not only reduce the costs of compliance – which is skyrocketing from 4% to 10% of revenue by 2022 – it will help the business to remain competitive with customers and demonstrate control to regulators and shareholders.
What have been some of the big steps forward in RegTech this year?
2017 has been a great year for early adopters of RegTech. Across the globe, regulators have proactively pushed the development of better technical capabilities. Concepts have been explored, proofs of concept run, and real business cases created as both regulator and regulated seek better ways to oversee the system. For example, in the regulatory reporting space alone, the FSB and CPMI/IOSCO are working out the overarching aims, the FCA and EC are pushing semantic approaches to regulatory reporting while the CFTC is also rewriting its approach
Their efforts have been called everything from ‘SupTech’ to FinTech to TechSprints to Sandboxes and labs – but the one thing they have in common is that they are breaking down barriers to collaboration. We are now seeing leading firms scale their RegTech approaches and the number of tech companies in the sector has soared into the hundreds.
What’s the most overhyped technology being promoted for RegTech? What’s the most overlooked?
While artificial intelligence has its place, far too much hope is being pinned on the ability of machines to sort out the nuances of massively complex rulesets that are written by lawyers, for lawyers. However, as we learnt this year in the FCA/BoE’s TechSprint, some of the early RegTech wins are focused on making the rules able to be interpreted by the machines.
There is now a whole semantic ecosystem of tech companies that are able to encapsulate human knowledge in ways that machines can leverage to define what ‘good looks like’ – and ensure the controls are in place to measure performance. The RegTech Council has enabled regulators and firms to prove that many reporting regimes can be linked back to an underlying trade and that the obligations in a rule book can be automatically linked to responsible individuals in a firm. Watch this space!
Where are financial institutions in their Regtech thinking?
A survey we ran this year found 21% of firms feel they have a vision of regulatory compliant architecture, but 57% say a reg-by-reg approach rules the day. We are clearly still in the early days of the ascent up the RegTech mountain and many are lost in the foothills. However, after years of making it difficult for smaller vendors to work with them, procurement departments are starting to wake-up to the benefit of working with the leaders.
What has been the biggest issue you have had to deal with in your role?
Ownership. 12 years ago it was uncommon for whole compliance, technology and data teams to walk across the street to the competition – or over to work for a regulator. The crisis, and rising cost/income ratios changed all that. Today, senior management are far less steeped in a common operational culture and tend to rely on services companies and contractors to advise them on their obligations. As SMCR and other regimes enforce accountability, however, this is starting to change – yet the RegTech market is moving far more slowly than one would have thought from the outside,
What has been your greatest professional achievement?
After the bottom dropped out of the market for collaboration in 2010 we decided to repurpose JWG’s IP to develop a platform that enables firms, their regulators and suppliers to host not only their semantically enriched rule books, but a ‘single version of their business truth’. We’ve worked hard to realise that vision and grow one of the best RegTech teams in the industry who not only support the RegDelta platform, but continue to lead the collaborative dialogue with 90% of Tier 1 and 2 sell-side, and an ever-growing share of the buy-side. So far, we’ve enabled new approaches to the interpretation challenge that have delivered tens of millions in savings and are only just getting started!
What do you do to relax?
After 120+ MiFID implementation workshops over the past 3 years, I will be lying on a beach in the Indian ocean with a cigar as another new set of rules dawns. I’ll be exercising, reading non-fiction, drawing and not worrying about regulation.
Can you recommend a restaurant to us?
My three teenagers and I love to cook. Let us know if you want to book a table at Da Di Giammarino.