Category Archives: Risk & Compliance

Risk & Compliance Why We Need Explainable AI (Video)

Box stamped AI
Aug152017

As artificial intelligence reaches new areas such as risk management in banking, explainable AI will become more important. That’s the message FICO’s Derek Dempsey gives in a video interview recorded with Compare the Cloud. Derek, a principal consultant with Fair Isaac Advisors who was named one of the Big Data 100 by DataIQ magazine in 2015, discusses the impact AI and machine learning have had in fraud detection, and the growing use in financial services. Risk management has greater requirements for explaining decisions, Derek says, and this will force AI developers to think differently. For more on this topic, read Scott Zoldi’s blog posts on explainable AI. Watch the video on Compare the Cloud

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Risk & Compliance AI – What Chief Compliance Officers Care About

AI conference logo
Aug092017

Arguably, there are more financial institutions located in the New York metropolitan area than anywhere else on the planet, so it was only fitting for a conference on AI, Technology Innovation & Compliance to be held in NYC – at the storied Princeton Club, no less. A few weeks ago I had the pleasure of speaking at this one-day conference, and found the attendees’ receptivity to artificial intelligence (AI), and creativity in applying it, to be inspiring and energizing. Here’s what I learned. CCOs Want AI Choices As you might expect, the Chief Compliance Officers (CCOs) attending the AI conference were extremely interested in applying artificial intelligence to their business, whether in the form of machine learning models, natural language processing or robotic process automation – or all three. These CCOs already had a good understanding of AI in the context of compliance, knowing that: Working the sets of rules... [Read More]

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Risk & Compliance PSD2 Glossary – the 50 Terms You Need to Understand

PSD2 logo
Aug072017

It’s not unusual for EU Directives to arrive with a whole host of acronyms and terminology, and PSD2 is no exception. From AISP to XS2A there are some new terms, some terms that have a new meaning in this context, and some established payment terms it’s always worth having a reminder about. When I couldn’t find a glossary to help me understand the terminology, I decided to create one. Or the 50 PSD2 terms, here are my 3 favorites: ASPSP – Account Servicing Payment Service Provider — a tongue-twister to rival Sister Suzie and her shirt-sewing shenanigans! An ASPSP is a Payment Service Provider (PSP) such as a bank or card issuer that provides authorised access to bank account information. For PSD2 they are allowing API access to bank account data for Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs). This makes my top three as I can’t... [Read More]

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Risk & Compliance 3 Reasons to Prepare Your Fraud Operations for PSD2 – NOW

Cover to fraud brief
Jul272017

PSD2 is on its way but in many respects it feels like it will never happen. So much is still undefined; it’s not yet transposed into national law, the complete Regulatory Technical Standards are not issued and much is still open to interpretation. Given this uncertainty, it is not unreasonable to take a wait and see attitude to preparation – after all it’s likely to be more than a year before you will be expected to apply PSD2 to your payment operations. A laissez faire attitude to preparing your fraud operations for PSD2 may however be a bad move. NOW is the right time to get ready. Read our executive brief Getting Your Fraud Operations Ready for PSD2 so that you can understand the three reasons why you should act now: You will want to secure payments with Transaction Risk Analysis – but that will bring fraud challenges. You will... [Read More]

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Risk & Compliance Collections & Regulations: Are You Leaving Money on the Table?

Stop sign
Jul262017

Debt collectors, like everyone else in financial services, are drowning in regulatory changes. In my last posts I’ve discussed IFRS 9, GDPR and, to a lesser extent, the basket of fun known as PSD2. One of the natural human responses to change is to narrow one’s focus to the necessary task at hand and push everything else away. Just focus on ticking the boxes, and ignore the cries to rethink the way we’re doing business. Sweat what we’ve got and don’t spend any money. That’s what I’m hearing at many collection shops when the conversation turns to optimization or advanced analytics. There’s a cost to this approach, though. Collectors are in danger of leaving money — a lot of money — on the table. The IFRS 9 Bucket Challenge Here’s the first reason: Impairment provisions and losses. This is what I have dubbed the IFRS 9 Bucket Challenge. I wrote... [Read More]

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Risk & Compliance Financial Crime: KYC Across the Whole Customer Lifecycle

Man holding KYC sign
Jul242017

Several top global banks have made it into the press again — for the wrong reasons, reasons to do with international money laundering schemes. From facilitating trading with companies in sanctioned countries, to moving cash for Russian launderers to channeling Mexican drug money, these banks were caught and assessed steep fines by regulators. Even worse is the reputational damage that comes from not . These banks probably thought they were taking the “risk-based approach” that is at the center of most anti-money laundering (AML) regulations and know your customer (KYC) appraoches. But were they doing enough? Did they truly know the customer, their business and the relationship? Did they understand who stood behind the customer – where the funds were coming from? Over the past years, regulatory pressure on banks has increased and resulted in more sophisticated risk-based approaches that require banks to consider much more information on the customer... [Read More]

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Risk & Compliance Do Consumers Seek More Credit After Their Score Recovers?

Jul202017

In a previous post, we noted that the majority of consumers who had a 7-year-old delinquency purged from their credit file saw improvements in their FICO® Scores. Now let’s look at whether these consumers’ credit-seeking behavior changed after the delinquency was purged and their score recovered. Were they more likely to apply for credit? Get approved and open new accounts? To assess this, we looked at the proportion of the “delinquency purge” population (those that had a delinquency removed from their credit report between May 2016 and July 2016) that had a new inquiry or opened a new account in the three months following the purge window (August through October 2016). In Figure 1, we compared those values to the same period a year earlier, to avoid capturing seasonal changes in credit habits. The data showed that there was a minor increase in the percentage of consumers that had a... [Read More]

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Risk & Compliance Is US Financial Regulatory Reform Dead or Ready for Take Off?

Capitol building
Jul172017

As a result of several recent policy developments, talk of achieving meaningful US financial regulatory reform is getting louder. The passage in the House of the Republican-backed Financial CHOICE Act of 2017 (Choice Act), the ongoing federal agency activity in response to a number of regulatory reform-related Executive Orders by President Trump, and the positive results from the Fed’s annual supervisory stress tests of large banks are examples of efforts that appear to be moving the reform movement forward. Yet formidable political obstacles remain, leading many to ask: What is achievable and what path will regulatory reform follow? Here is my take. A Legislative Solution Is Not on the Horizon … at Least Not Any Time Soon In June, the House adopted, along a party line vote, the Choice Act, which aims to make broad changes to the 2010 Dodd-Frank statute. While Democrats and Republicans have both discussed their willingness... [Read More]

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Risk & Compliance US Average FICO Score Hits 700: A Milestone for Consumers

Jul102017

FICO regularly tracks the national FICO Score distribution as an important gauge of US consumer credit behavior. When I last blogged about this topic based on data from April 2016, the key takeaway was “the beat goes on.” US consumers continued to show improvement in managing their debts, which began shortly after the bottoming out of the economy in 2009-2010. We have pulled the latest FICO Score distribution information based on a snapshot of millions of US consumers’ credit data as of April 2017, and can report that consumer credit health and responsibility continue to be strong! For the first time since we’ve been tracking these stats, the average national FICO Score reached the 700 threshold — some 10 points above what it was just prior to the recession in October 2006. Let’s dig a little deeper by examining the score distribution over the past 10+ years. The movement in... [Read More]

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Risk & Compliance Analytics Achievers Wanted for FICO Decisions Awards

FICO Decisions Awards logo
Jul052017

A company that solved an “unsolvable” wind farm optimization problem. An automaker that uses analytics to keep more delinquent customers in their cars. An airline that uses optimization throughout its business to improve customer service and efficiency. These are just some of the past winners of the FICO Decisions Awards – and now it’s time to find the next set of innovators. We’re looking for companies that are achieving outstanding success using FICO analytics and decision management solutions. Awards will be presented in six categories: Artificial Intelligence and Machine Learning Customer Onboarding and Management Debt Management Decision Management Innovation Fraud Control Regulatory Compliance. Winners will receive recognition at FICO World, which will be held April 16-19, 2018, in Miami. Winning implementations will be featured in conference activities, and two representatives of each winning company will receive complimentary conference passes. Nominations are due September 1, and winners will be announced in... [Read More]

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