Loraine Lawson
Good day and welcome to the Buzz. I’m Loraine Lawson, an associate editor with Bank Automation News. Recently, I spoke with Evgeny Likhoded, the founder and CEO of ClauseMatch. ClauseMatch automates compliance content and documents in financial institutions. We talked about new compliance issues, such as Environmental, Social, and Corporate Governance (ESC). Likhoded also revealed that regulators and the Department of Justice are focused on conduct more than fines for anti-money laundering and know your customer lapses and shared what that means for banks.Evgeny Likhoded
So, when, when we say, you know, in general, what we’ve seen, regulators have started looking into is, how do we actually create the culture of compliance? Or how do we help organizations to create the current culture of compliance because, typically, if you look at breaches and compliance, this is, you know, it, it happens, because people often don’t know, what’s the right thing to do, or they’re not focused on compliance, compliance is not part of, you know, their business process. And that is, because compliance has always been seen as a, as a nuisance to the business rather than something that helps the business. And then, you know, the word in the last 10 years, banks have tried to implement technical controls. So in order for non compliance not to happen, we’re just going to not allow people to enter these things into these systems and, you know, implement technical controls. So if you are not allowed to provide advice to, in this particular state, financial advice in this particular state, because you are not licensed in that state, as an example, then we just want to let you have customers in your portfolio from the state. So that’s the technical control, but people are very good if people have malicious intent, they’re very good at circumventing technical controls.
So another way of approaching the problem of compliance is actually looking at well, how do actually tell people or, you know, encourage people to do the right thing through the culture through the values through the, you know, reinforcement of that, do the right thing, do the thing, which is, you know, compliant with the regulations? And that is the conduct and where? So, focusing on conduct actually solves that non compliance issue long term?Loraine Lawson
What are some big digital regulations that you see on the horizon that banks should be aware of, or keeping their eyes on? doEugeny Likhoded
you do? So you mean digital regulations, regulations being published today?Loraine Lawson
Yes, something, you know, new or on, may be coming up this year or next.Eugeny Likhoded
So I think when we talk about digital regulations, there are there are two aspects. One is regulators themselves looking to digitize and publish regulations in a digital form. Because what we’re seeing today is that regulations are published on the website as a PDF document. And then for financial institutions, especially global ones, which are, which have over 1000 regulators to track, it becomes very, very difficult to track that because you can’t have the PDF document interpreted by machine very easily. So a lot of regulators are looking into how do they start creating and updating regulator regulations digitally, you know, which are pre tagged already with regulatory seams with products with types of organizations that these regulations are applicable to, and that will actually make it much much easier to comply with those regulations. Because we can ingest those regulations into a system, apply natural language processing, track them and understand where the rules and guidances are and evaluate the impact of those new regulatory rules automatically. But it’s very difficult to do today because every regulator publishes regulations differently, and not in a native digital form. So that’s, you know, when we talk about digital regulations, this is something that we really evangelize and promote, because this will just make the entire industry much more efficient and much more compliant.
But, you know, in general, kind of digital regulations, obviously, there are many regulations on data privacy, which are coming out across the world. Now, California started, but we think a lot of states will follow, follow the suit and have their own data privacy rules, and then across the globe, as well. So it will become a very complex issue in terms of where the data sits, where is it accessed from. And for banks, it’s, it’s going to be very important because banks have clients in the US, for example, a bank might have clients in the US, but customer service in a different country. And then offices and 60 other countries, and then separating that client data and making sure that no one can access it, where they are not supposed to, technically, is going to be a challenge. And then there is going to say we’ll see more regulations on cryptocurrency, because it’s just natural, when something gets so big and so heightened, we start getting retail investors and individual investors looking to really seriously looking to invest in those assets. And those financial products, immediately regulators will come.

Loraine Lawson
It makes sense. Define ESG (Environmental, Social and Corporate Governance). And to talk about what some of the regulatory issues surrounding ESG.

Eugeny Likhoded
So ESG is somehow became a very big topic in the last few months, I think ESG was always important. And companies which are, especially in polluting industry have all been aware that, you know, purely from the pressure of the public high, they had to show better compliance, better sustainability and environmental impact and how they were addressing it. But I think now it’s becoming a global kind of push for any company to be more aware about their environmental impact, their social impact, and making sure that they have proper governance in place to actually, you know, to actually show that they’re doing what they’re saying what they’re doing, right, it’s not enough to write a document and say, we’re great, we’re thinking about environment where we’re thinking about our social impact, they actually need to show and prove that they have governance in place to follow through on what they’re saying. And I think the issue that we’re seeing is that there are certain standards and frameworks being developed on ESG. What does it actually mean, to say that I am ESG compliant? And I think there are many, many different ways of looking at how you comply or how you you can say that I am environmentally socially good company, and then I’ve got governance in place to show that.

Loraine Lawson
So right now, there’s no legal definition. It’s just sort of the individual companies. Is that how it’s working?

Eugeny Likhoded
Yeah, so from what I’ve seen, there are a few frameworks that you know, you can follow. And if you frameworks which took a number of regulatory rules and obligations from different regulations, put them together and said, If you follow these, then you’ve got good governance in place, you’ve got your you can show that you’re environmentally friendly, and you have your you have good social impact. But so far, from what I see, every company can choose how they showcase that. And I think standardizing the ESG part, the part that has part and the G part. And everyone talks about on looking at E part and as part g part, but not combined.

Loraine Lawson
So are there ways to automate that is that something companies will be able to automate in some way?

Eugeny Likhoded
Yes, definitely. I think so. I think once the challenge of, you know, a prevalent standard, being followed by everyone is solved then We will see a lot of kind of automation tools as well, showing that. So, I mean, for example, with ClauseMatch platform, we can say that if you have a minimum set of policies and procedures addressing these specific obligations, adopted, and then you are reviewing them on a yearly basis, you have the audit trail, you can show that to the world and you have the minimum standard of showing that you are following is G to a certain level. Okay.

Loraine Lawson
So anything else you want to talk about today?

Eugeny Likhoded
Well, I think there is a lot that has happened in compliance. And we recently have had a webinar and, you know, some industry experts are saying this is the revolution and compliance is coming through, you know, new automation tools to AI. And the issue of AI has always been lack of enough data on the compliance side to actually automate compliance. But I think we underestimate how quickly it will come once we have the data available. You know, once the digital regulations are there, once the content compliance content and the assessment of compliance becomes digital, rather than, you know, pure documents and emails and website where those are published. That that that you know, that revolution will come very quickly.

Loraine Lawson
Good day and welcome to the Buzz. I’m Loraine Lawson, an associate editor with Bank Automation News. Recently, I spoke with Evgeny Likhoded, the founder and CEO of ClauseMatch. ClauseMatch automates compliance content and documents in financial institutions. We talked about new compliance issues, such as Environmental, Social, and Corporate Governance (ESC). Likhoded also revealed that regulators and the Department of Justice are focused on conduct more than fines for anti-money laundering and know your customer lapses and shared what that means for banks.Evgeny Likhoded
So, when, when we say, you know, in general, what we’ve seen, regulators have started looking into is, how do we actually create the culture of compliance? Or how do we help organizations to create the current culture of compliance because, typically, if you look at breaches and compliance, this is, you know, it, it happens, because people often don’t know, what’s the right thing to do, or they’re not focused on compliance, compliance is not part of, you know, their business process. And that is, because compliance has always been seen as a, as a nuisance to the business rather than something that helps the business. And then, you know, the word in the last 10 years, banks have tried to implement technical controls. So in order for non compliance not to happen, we’re just going to not allow people to enter these things into these systems and, you know, implement technical controls. So if you are not allowed to provide advice to, in this particular state, financial advice in this particular state, because you are not licensed in that state, as an example, then we just want to let you have customers in your portfolio from the state. So that’s the technical control, but people are very good if people have malicious intent, they’re very good at circumventing technical controls.
So another way of approaching the problem of compliance is actually looking at well, how do actually tell people or, you know, encourage people to do the right thing through the culture through the values through the, you know, reinforcement of that, do the right thing, do the thing, which is, you know, compliant with the regulations? And that is the conduct and where? So, focusing on conduct actually solves that non compliance issue long term?Loraine Lawson
What are some big digital regulations that you see on the horizon that banks should be aware of, or keeping their eyes on? doEugeny Likhoded
you do? So you mean digital regulations, regulations being published today?Loraine Lawson
Yes, something, you know, new or on, may be coming up this year or next.Eugeny Likhoded
So I think when we talk about digital regulations, there are there are two aspects. One is regulators themselves looking to digitize and publish regulations in a digital form. Because what we’re seeing today is that regulations are published on the website as a PDF document. And then for financial institutions, especially global ones, which are, which have over 1000 regulators to track, it becomes very, very difficult to track that because you can’t have the PDF document interpreted by machine very easily. So a lot of regulators are looking into how do they start creating and updating regulator regulations digitally, you know, which are pre tagged already with regulatory seams with products with types of organizations that these regulations are applicable to, and that will actually make it much much easier to comply with those regulations. Because we can ingest those regulations into a system, apply natural language processing, track them and understand where the rules and guidances are and evaluate the impact of those new regulatory rules automatically. But it’s very difficult to do today because every regulator publishes regulations differently, and not in a native digital form. So that’s, you know, when we talk about digital regulations, this is something that we really evangelize and promote, because this will just make the entire industry much more efficient and much more compliant.
But, you know, in general, kind of digital regulations, obviously, there are many regulations on data privacy, which are coming out across the world. Now, California started, but we think a lot of states will follow, follow the suit and have their own data privacy rules, and then across the globe, as well. So it will become a very complex issue in terms of where the data sits, where is it accessed from. And for banks, it’s, it’s going to be very important because banks have clients in the US, for example, a bank might have clients in the US, but customer service in a different country. And then offices and 60 other countries, and then separating that client data and making sure that no one can access it, where they are not supposed to, technically, is going to be a challenge. And then there is going to say we’ll see more regulations on cryptocurrency, because it’s just natural, when something gets so big and so heightened, we start getting retail investors and individual investors looking to really seriously looking to invest in those assets. And those financial products, immediately regulators will come.

Loraine Lawson
It makes sense. Define ESG (Environmental, Social and Corporate Governance). And to talk about what some of the regulatory issues surrounding ESG.

Eugeny Likhoded
So ESG is somehow became a very big topic in the last few months, I think ESG was always important. And companies which are, especially in polluting industry have all been aware that, you know, purely from the pressure of the public high, they had to show better compliance, better sustainability and environmental impact and how they were addressing it. But I think now it’s becoming a global kind of push for any company to be more aware about their environmental impact, their social impact, and making sure that they have proper governance in place to actually, you know, to actually show that they’re doing what they’re saying what they’re doing, right, it’s not enough to write a document and say, we’re great, we’re thinking about environment where we’re thinking about our social impact, they actually need to show and prove that they have governance in place to follow through on what they’re saying. And I think the issue that we’re seeing is that there are certain standards and frameworks being developed on ESG. What does it actually mean, to say that I am ESG compliant? And I think there are many, many different ways of looking at how you comply or how you you can say that I am environmentally socially good company, and then I’ve got governance in place to show that.

Loraine Lawson
So right now, there’s no legal definition. It’s just sort of the individual companies. Is that how it’s working?

Eugeny Likhoded
Yeah, so from what I’ve seen, there are a few frameworks that you know, you can follow. And if you frameworks which took a number of regulatory rules and obligations from different regulations, put them together and said, If you follow these, then you’ve got good governance in place, you’ve got your you can show that you’re environmentally friendly, and you have your you have good social impact. But so far, from what I see, every company can choose how they showcase that. And I think standardizing the ESG part, the part that has part and the G part. And everyone talks about on looking at E part and as part g part, but not combined.

Loraine Lawson
So are there ways to automate that is that something companies will be able to automate in some way?

Eugeny Likhoded
Yes, definitely. I think so. I think once the challenge of, you know, a prevalent standard, being followed by everyone is solved then We will see a lot of kind of automation tools as well, showing that. So, I mean, for example, with ClauseMatch platform, we can say that if you have a minimum set of policies and procedures addressing these specific obligations, adopted, and then you are reviewing them on a yearly basis, you have the audit trail, you can show that to the world and you have the minimum standard of showing that you are following is G to a certain level. Okay.

Loraine Lawson
So anything else you want to talk about today?

Eugeny Likhoded
Well, I think there is a lot that has happened in compliance. And we recently have had a webinar and, you know, some industry experts are saying this is the revolution and compliance is coming through, you know, new automation tools to AI. And the issue of AI has always been lack of enough data on the compliance side to actually automate compliance. But I think we underestimate how quickly it will come once we have the data available. You know, once the digital regulations are there, once the content compliance content and the assessment of compliance becomes digital, rather than, you know, pure documents and emails and website where those are published. That that that you know, that revolution will come very quickly.