CH&Co - Supporting the development and adoption of RegTech

CHAPPUIS HALDER & CO.
FCA – RegTech
Call for Input: Supporting the development and adoption of RegTech
January 2016
Stephane Eyraud seyraud@chappuishalder.com
Nicolas Heguy nheguy@chappuishalder.com

2CHAPPUIS HALDER & CO.
Objectives of this presentation
 Remind the context and objectives of the ‘RegTech’ Call for Input issued by the FCA
 Provide our answers and insights to the questions in the Call for Input
 Present Chappuis Halder’s expertise, especially in Regulatory and FinTech topics
2
Chappuis Halder & Co. is willing to contribute beyond this answer
by being involved in the workshops planned in Q1 2016

Agenda
Context1
3 Presentation of Chappuis Halder & Co.
4 Appendix
Our answers to the Call for Input2

Context of the Call for Input
 In 2014 the FCA launched ‘Project Innovate’ to ensure that its regulatory regime supports the development of
innovative financial products and services for the benefit of the consumers. As part of this project, a Call For
Input has been issued in November 2015 to seek broader views on how to support the adoption of new
technologies to facilitate the delivery of regulatory requirements – called ‘RegTech’
 The UK wants to capitalise on the development and commercialisation of innovative financial services based
on new technologies (‘FinTech’) and become the world’s leading FinTech hub, leveraging its favourable
environment:
 Position as a world-leading centre for financial services, with excellent financial services infrastructure
 Presence of a large and technologically sophisticated customer base
 Unique attractiveness in terms of capital availability, angel investors, welcoming and entrepreneurial culture
 But in recent years regulation has increased and could be an obstacle to the development of innovation
 Financial firms have focused the major part of their resources on remediation programs to the detriment of
innovation
 A significant number of Fintech firms seeking FCA approval are reported to have withdrawn their application
due to the complexity and cost of the process* and despite the implementation of the regulatory sandbox
 To prevent this, an effective regulatory regime is needed to support the development of new technologies
tackling regulatory issues, to help financial firms:
 Better manage the regulatory requirements, reduce their compliance costs
 Ensure that regulations do not make processes difficult for consumers or limit innovation that could be good
for consumers
* Source: http://www.altfi.com/article/1425_authorisation_process_proves_too_much_for_some_platforms

Q1. What RegTech to introduce in the market? (1/2)
Q1 - What RegTech could be introduced in order to make it easier for firms to interact with regulators, at a
lower cost and administrative burden?
Interactions between financial firms and regulators involve three parts:
A. Financial firms as the providers of regulatory information
In this regard, RegTech could be introduced to provide:
 Big data capabilities: advanced data parsing & analytics allowing financial firms to parse large and analyse
numerous databases of information, and then extract, compute and aggregate the relevant elements of
information to be reported in near real-time
 Machine learning & predictive analytics could be used for real-time risk/fraud identification through
correlation of multiple sources of information
 Automation: automating the manual reporting processes, and more specifically providing test robots
capable of running and presenting the results of stress testing
 Programmable reporting: using of a rule-based language and interface, to build flexible reporting that can
evolve with regulation
 Visualisation capabilities: tools could provide advanced visualisations for better decision making and
information sharing
 Immutable records: in this regards, blockchain could provide innovative solutions (shared trusted database
of transactions for ownership transfer, or identities for AML/KYC purpose)
 Cybersecurity alerts: reporting data breaches and serious alerts to the financial firms community (as part
of CISP - Cyber Security Information Sharing Partnership)
 Third Party Risk Management: could act as service providers to financial firms in order to conduct due
diligence, contractual provisions, compliance with privacy regulations, audit rights, etc. and possibly
executed through the blockchain technology

Q1. What RegTech to introduce in the market? (2/2)
Q1 - What RegTech could be introduced in order to make it easier for firms to interact with regulators, at a
lower cost and administrative burden?
B. Medium of communication (that should be part of the regulatory requirements)
The minimum for UK regulators would be to provide dedicated reporting templates, as well as APIs for financial
firms to provide the required information (for an easy integration into UK regulators’ systems).
UK regulators could go as far as providing a comprehensive platform – and might even consider being its own
RegTech - to push the regulatory requirements as well as gather the reporting from the community.
C. Regulators as the source of the regulatory requirements and controls
This is covered in the Q2 question.

Illustration: landscape of existing RegTechs (non-exhaustive)
See detailed list in appendix – slides 20 to 22
Data management
/ Reporting
Risk management
Compliance
RegTech
UK
UK
UK
UK
Ireland
Ireland
Ireland
USA
USA
USA
Europe
Europe
Europe
Europe
KYC / AML / Anti-fraud

We think the FCA should keep its independent position in the ecosystem, focusing on the improvement of
standards and guidance:
 Offer a more comprehensive and user-friendly online service allowing the RegTechs to register to enter
the market
 Influence the local and European regulators to issue more readable and implementable regulations,
providing standardised formats of implementable requirements (similar to the ‘SMART’ frameworks for
management objectives: specific, measurable, attainable, reasonable, time-related)
 Provide APIs for regulatory reporting as well as standard data sets when relevant (i.e. stress testing)
 Facilitate the emergence of common RegTech standards through the organisation of workgroups (part of
the present call for input)
 Provide core training for major regulations, that every member of the community could follow (online
platform)
 Organise the Cybersecurity Threat Intelligence for the financial community (already implemented
through CISP - Cyber Security Information Sharing Partnership)
 Cooperate in regulatory policy modelling to simulate the expected impacts of new regulations before the
legislation and/or simulate the concrete impacts of existing regulations
 Sponsor internships or research works on regulation and innovation in Finance in partnership with
selected universities
Q2. What role for the FCA?
Q2 - What role would it be most useful for the FCA to play in order to foster development and adoption of
RegTech in financial services, and what method would best suit this engagement?

Q3 - Are there any specific regulatory rules or policies that cause barriers to innovation or adoption of RegTech
for financial services (products or processes)? Please provide examples of when these rules or policies have
stifled development/adoption and describe the impact (e.g. delay, abandonment of project, economic impact).
We are also interested in hearing about regulatory rules or policies that may extend beyond the UK regulatory
jurisdiction including, for example, European or international policies and agreements.
As a consulting firm working for banks, we are not able to comment specific rules on the adoption of RegTech by
banks. But, from our engagements with financial firms, we have two observations:
 The volume and complexity of existing and new regulations have had the unintended consequence of
encouraging banks to focus on compliance rather than innovation
 Because of regulatory uncertainty, financial firms are cautious about innovation by developing new
products and using new technologies
Q3. Policies causing barriers to innovation

Q4 - Are there any regulatory rules or policies that should be introduced to facilitate innovation and adoption in
RegTech for financial services (products or processes)? Please provide examples of when the absence of these
rules or policies has stifled development/adoption and describe the impact (e.g. delay, abandonment of project,
economic impact).
In connection with the two observations mentioned in our response to Q3:
Volume and complexity
 We agree with the Treasury proposal, in Fixing the foundations: creating a more prosperous nation that
the regulators should seek to achieve a better balance between regulation and competition / innovation.
Regulatory uncertainty
 The regulations were developed for a branch-based banking system, with banks developing their own
technology. We suggest that the regulators should be reducing regulatory uncertainty by giving guidance
and expectations regarding the use of online systems and external suppliers of new technologies.
Q4. Policies to introduce to facilitate innovation

Q5 - Which existing regulatory compliance or regulatory reporting requirements do you feel would most benefit
from RegTech?
All aspects of regulation would benefit from the introduction of RegTech:
 AML/KYC requirements: start-ups could provide innovative solutions for the implementation of systematic
and consistent KYC solutions across the entire organisation. For instance Tradle proposes such a service over
Blockchain technology
 Automated advice (in the UK): start-ups could offer automated services that make customers’ asset
allocation decisions easier while also lowering costs
 FDSF (Firm Data Submission Framework): bringing a strategic platform that could aggregate all required and
documented data to comply with stress testing requirements
 Capital assessment / Stress testing (CCAR, AQR..): advanced analytics capabilities can be used to design
models and evaluate how thousands of variables impact banks
 Trading book risk management (Volcker, MiFID, ...): algorithms could help control the margin requirements
for each transaction and manage the market risk of the traders' portfolio
 Reporting (Basel, Dodd-Frank ...): there is an opportunity for start-ups to provide near real-time data analysis
and custom reporting leveraging new technologies
 MiFID II: as it will be illegal to pay for research via trading commissions, a kind of marketplace for equity
research could be provided by FinTechs to investment firms to face the unbundling issues of this regulation
 Solvency II: creation of a connectivity between asset managers and insurers through a fund data utility to
meet Solvency II Pillar 3 reporting and Pillar 1 asset data requirements
Q5. Regulatory requirements to benefit from RegTech

Agenda
Context1
Presentation of Chappuis Halder & Co.
4 Appendix
3

CH&Co. is a consulting company specialising in Financial Services.
We are now serving clients in all of the major financial centres across the globe. Our main focus is on three
business areas: Corporate & Investment Banking, Retail & Private Banking, Insurance and Commodity Trading.
CH&Co. expertise is anchored in the deep sector and functional knowledge of our consultants; all of us have a
financial services background, and know the sector inside out. Because we do nothing else, and we operate
across the globe, we are able to bring a rich seam of best practice ideas and benchmarking data to our clients.
Hong Kong
Singapore
CH&Co. office
Geneva
New York
Montreal
Paris
Tokyo (Rep Office)
CH&Co. worldwide footprint
A Financial Services consulting firm delivering strategic projects globally
14
London

Our expertise in FinTech
15
GET connected to the heart of innovation
Build direct contacts with innovators, to identify and
understand new trends, with start-ups, investors, regulators,
incubators in:
• London
• New York
• Singapore
• Tel-Aviv
GET involved into innovation
Support innovative start-ups to improve their business models,
look for investors, select best-of-breed service providers to
propose one-stop shopping offer to our clients
• CH&Co. co-organised the start-up contest with InPayCo in Toronto
(Mar. 2015) and Paris (Nov. 2015)
• CH&Co. sponsored the Fintech Connect in Dec. 2015 in London
• Our consultants coach start-ups in Switzerland, Poland and London
(Start-Up Boot Camp)
• CH&Co. co-organised exploratory trips to discover start-ups (last
one: Tel-Aviv in Apr. 2015)
GET ideas for our clients
Produce content / studies / overview / panorama to fuel
bank’s innovation processes
Select initiatives, Identify potential benefits for banks,
define the possible partnership in bank’s context
Realise benchmark studying best practices and new way to
manage projects
GET concrete feedbacks on innovation
Keep track of the various developments in the sector: new
initiatives, new ideas, main trends, etc.
Assess the success of the different new initiatives /
technology with on-field tests, thanks to our international
footprint
FINTANK

Our expertise in Regulation
16
Knowledge of
Capital Markets
industry
• CH&Co. has led numerous challenging projects within Capital Markets environment:
 Assistance in the deployment of new activities in investment banking, including in particular: equity
structured products, convertible bonds, structured deposits…
 Front to Back Office process redesign, Lean Six Sigma optimisation, Zero Base Budget program, workload
improvement…
• CH&Co. conducted a large number of regulatory projects across multiple locations:
 EMIR set-up of Reporting On Behalf and Unique Transaction Identifiers for a major French CIB
 Project management assistance on the implementation of EMIR risk mitigation requirements and follow-
up of Dodd-Frank Act requirements and communication/update to Front Office of a major European CIB
 Implementation of a monitoring and reporting program on Volcker Rule for a major French CIB operating
in the United States
 Value at Risk model homologation under the Basel II – Market Risk requirements and redesign of default
probability model and implementation of the related rating tool for Basel II – Credit Risk
 Deployment of new KYC repository, processes and workflow tools of a CIB group in APAC
• CH&Co. is currently implementing the FCA TR15/02 remediation plan on Structured Products within a major
French CIB in London
• CH&Co. has been involved in numerous complex international projects, and has a strong track-record of
Project Management in complex and international environments
Knowledge on
regulatory topics
Excellent project
management in
complex
environment
Our experience
1
2
3

CH&Co. has a unique position in the market
We distinguish ourselves from our competitors through a unique positioning enabled by four key factors
17
Moreover, the business model of CH&Co. is deliberately diversified to limit its dependency to clients or regions:
 58% of incomes from Corporate and Investment banking, 29% from retail banking and 13% from insurance
 56% of incomes from EU, 26% from Asia and 18% from US
Expert in Financial Services: A global management
consultancy with dedicated expertise in financial
firms fuelled by our in-house research teams
Global reach, local solutions: Presence at the major
financial capitals to serve our international clients
and handle global projects with a local know-how
Innovation through pragmatism: our driving force
behind long-term success, resulting in tailored
business ideas and actual business results for clients
Committed to make things happen: A capacity to
deliver projects from inception to implementation,
from strategic planning to operational roadmaps
1
2
3
4

CH&Co. capabilities: three main offers supported by three transversal centres of expertise
18
Business Strategy
New Offers / Products
Partnerships
(JVs, SSC, BPO, …)
Acquisitions &
Post Merger Integration
Business Development & Innovation
Finance Function Effectiveness
Financial Performance
(PCG, FX exposure, PNL)
Risk Management /
Risk Control
Capital Funding
& Balance Sheet Management
Risk & Finance
Performance Management
Target Operating Model design
Process Optimisation
& Cost Reduction
Business Application
Strategy & Security
Business & Operation
Transformation
Regulatory Compliance – Our experts are specialised in national and international regulations
Remediation Plans, IFRS, Basel II/III, Solvency II, EMIR, Dodd Frank (Volcker/IHC/CCAR/Resolution Plan), MiFid, FATCA, E-Trading
KYC / Client Onboarding, AML, Vendor Risk Management
Digital – We work with out clients to develop their digital coverage by optimising media, launching new products, digitising
business processes and transforming organisations, always with the end-user in mind
Fintech strategy, Process efficiency, Mobile/Online Product development, User experience & CRM, Market watch, …)
Global Research & Analytics – Our GRA experts help our clients to understand their data and turn it into actionable measures
Risk modeling, Client Segmentation, Portfolio Optimisation …
Offers
Centresofexpertise

Agenda
Context1
Presentation of Chappuis Halder & Co.
Appendix
3
4

Detailed list of existing RegTech startups (1/3)
Name Location Description
UK
Detects disruptive events in global financial markets and anticipate price movements
hours or days in advance of the event
Israel
Uses machine learning and predictive analysis to find actionable news when the asset
is not explicitly mentioned in the content
UK Prevents commercially sensitive information being sent to the wrong person
Ireland Analyses compliance risks in banks
Ireland Transforms how data is managed, processed and leveraged by the Funds Industry
UK
Offers a cloud-based managed compliance service for asset managers, hedge funds,
institutional investors
USA
Provides risk management and anti-fraud services for the e-commerce ecosystem by
tracking payments entities
Switzerland
Allows easy exchange of KYC and Client Due Diligence data between financial
institutions and clients
UK
Allows traders to choose a CCP for an OTC derivatives transaction by understanding
its margin requirements and manages the market risk of the traders’ portfolio
Netherlands
Offers an alternative way for banks and investors to analyse credit risk, combining a
statistical analysis of data with subjective opinions about forward looking risk
UK
Automates the collection, verification and secure storage of customer due diligence
data and documentation

UK Delivers firm-wide risk aggregation, scenario analysis and risk data management
USA
Uses Artificial Intelligence to automate and coordinate full-scale compliance and risk
management programs for value, accuracy and insight
UK
Creates connectivity between asset managers and insurers, through a fund data
utility in a secure and controlled environment, to meet requirements of Solvency II
UK
Helps bank sort and source data, generate business intelligence and submit required
regulatory reports without any disruption of current bank architecture
UK
Offers granular behavioural profiling algorithms to automatically analyse trading
activity for unusual behaviour indicating potential misconduct
Ireland Allows trade data tracking and risk alerts
USA
Uses blockchain to build a KYC network to allow portability of KYC data, with full user
control
USA Provides instant electronic identity and address verification for individuals
USA Helps create and securely manage the consent to use customer personal data
Ireland
Delivers individual, real time decisions for every one of your customers using
multiple dynamic data sources
Ireland
Enables the supervision of companies by a supervisor authority, such a central bank,
financial regulator or tax authority

Ireland Offers integrated regulatory risk and compliance management solutions
Ireland Provides information security assurance and compliance validation services
Switzerland
Offers a front-to-back toolbox which covers the entire investment process:
regulatory compliance, client communication as well as quantitative analysis, risk
management, portfolio management and asset selection
UK
Provides solutions for compliance officers and forensics teams that help detect cases
of market abuse, fraud, collusion, sensitive and reckless behaviour early and conduct
investigations faster
UK
Helps simplify, speed up, and improve the quality of compliance and anti-fraud
decisions. It delivers due diligence and risk- scoring on both companies and
individuals
UK
Provides the critical information to keep up-to-date with fast moving regulatory and
legislative developments across the globe
US
Cloud-based marketplace program for research, financial info and apps, Airex Market
has a broader scope than addressing the research unbundling issues around MiFID II
Ireland
Enables organisations to achieve regulatory compliance by conducting Know Your
Customer (KYC), Anti Money Laundering (AML) and Fraud prevention due diligence
France
Offers a web-based marketplace for consumers of equity research to host digitally
their shopping cart-library
UK
Provides an FCA regulatory hosting umbrella for start-ups, FinTech and financial
services firms

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