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The transparency challenge: providing algorithmic clarity in the financial services sector

By James Loft, Chief Operating Officer, Rainbird

 

As an industry, financial services is amongst the most data-heavy. The information flowing through firms is sensitive, diverse and complex, and covers everything from consumer credit card transactions to mortgage lending and stock price projections. Given its rapid rate of growth, big data has become an integral part of industry strategies to generate new revenue streams, enhance efficiency and improve the customer experience.

 

The result of this has been increased interest and investment in AI technologies. While it will come as little surprise that firms want to get more from their data, they’re also facing tough competition from new challenger banks and fintech companies, many of which are driving change faster than the more traditional players would like.

 

Previously, the sector’s primary use of AI tools has been to transform back-office processes. It’s been a cost-saver rather than a revenue generator, with applications such as robotic process automation (RPA) used to complete simple, repetitive tasks and internal deployment allowing for a conservative approach. But as the market evolves, a second wave of investment is pushing AI closer to front-line services, bringing with it some unique challenges.

 

Protection and regulation

 

Earlier this year, UK Finance and Parker Fitzgerald co-authored a report exploring the power of disruptive technologies and the sustainability challenges facing financial services firms in the digital age.

 

The report takes an in-depth look at the impact of new technologies on the sector, discussing how organisations should handle integration. This is of particular importance to complex financial organisations such as banks, as they are comprised of intricate infrastructures involving complicated risk and compliance processes. All of which are subject to intense scrutiny and regulation.

 

When it comes to AI, one of its biggest benefits is the potential to help firms better match internal policies and procedures with the external demands of regulators – for example, improving the way in which risk within the business is modelled and managed. New data-driven platforms can help firms become more sophisticated in the way they tackle issues such as fraud, identity theft and money laundering, allowing them to provide greater protection to the consumer.

 

Importance of auditable AI

 

In an industry as heavily regulated as financial services, auditable AI is of significant importance to firms. While organisations have been applying AI to business processes, most concerning to regulators is a loss of market transparency.

 

At present, the delivery of services such as mortgage applications and credit scoring though automated advisory models are some way off. This is because deep learning and neural network systems are not yet fully auditable. Their use creates a problem referred to within the technology community as “black box” decision-making.

 

But in regard to important issues relating to consumer protection, such as fraud, firms can deploy auditable automation technologies. These platforms use algorithms to spot suspicious activity, detect patterns and predict outcomes in large data pools. Some of the more advanced solutions are even capable of assessing the anatomy of a fraudulent transaction — they can draw inferences based on the information available, raise questions where the data is incomplete and produce audit trails.

 

What consumers and regulators want is a clear-cut way to interpret AI tools; to ensure data is being used both legally and ethically. So, for financial organisations applying AI-powered solutions, automated technologies that are auditable and explainable when challenged represent a huge step forward when it comes to compliance.

 

To underscore the importance of transparency within the sector, PricewaterhouseCoopers (PWC) has developed a responsible AI framework which outlines best practice principles and provides guidelines for firms to follow.

 

What’s next for AI in financial services?

 

While AI technology is certainly making its presence felt within the sector, adoption rates are still slow. The general feeling is that the industry is feeling its way forward – but change is coming. According to McKinsey, in the next few years AI will complete between 10 and 25 percent of the work across bank functions. Much of this is likely to continue to be in back-office processes, with a more measured increase in consumer-facing products.

 

So, what we’re likely to see as AI continues to reshape the financial services sector is a strategic approach to implementation. A streamlining of internal operations that helps firms match internal processes with external regulation. And the best way for firms to do this is to invest in auditable, transparent and explainable AI-powered solutions.

 

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Finance

TIME TO FOCUS ON YOUR ‘WEALTHBEING’

Tony Mudd, Divisional Director, Development & Technical Consultancy. St James’s Place

 

FIVE WAYS TO SAFEGUARD YOUR FINANCIAL FUTURE

The financial and economic impact of the coronavirus crisis has thrown up a host of issues for families to consider.

Above all, the experience has reinforced the importance of always being prepared.

The pandemic’s effect on jobs and incomes has underlined the value of having a robust financial safety net in place.  And it’s never too late to take control and start planning. It’s time to focus on your ‘wealthbeing’.

 

Here are some positive steps you can take to safeguard your financial future.

  1. Income security

With almost nine million UK employees of around one million businesses1 placed on furlough since the coronavirus crisis unfolded, there is potential for large numbers of redundancies as employers examine their reopening plans and contemplate the future of their business.

If you’re in employment and still being paid, look at how long that is likely to continue. As far as you are able, try to budget appropriately. Also look longer term at other sources of finance that you would be able to access if needed (such as savings, existing investments or, perhaps, borrowing), as well as the gaps that insurance policies could help fill.

Tony Mudd

If you are facing redundancy, make sure you understand what you can expect from your employer – your notice period, redundancy entitlement and statutory redundancy cover – as well as the government support that’s available.
Ask yourself – Where do I stand? What do I need? Can I continue to pay my bills? What are my responsibilities?If you do need to dip into your savings or investments, be careful about where you take it from – and when. The right choices here will help you preserve your capital by helping you minimise your tax, reduce charges and get the best from your assets.
If you don’t have savings or investments available, check whether you’re entitled to state support. The Money Advice Service website is a good source of information and guidance. If you’re struggling, or think you might soon be, don’t hesitate to seek free, impartial debt advice from the likes of StepChange and Citizens Advice.

 

  1. Create an insurance buffer

Do a risk audit on yourself. Ask what the financial implications would be – for you and your family – if you get sick or lose your job. Ascertain what potential risks you might face as a family and as an individual. It will be different for everyone, so it’s about considering your personal circumstances and those of the people who rely on you to work out what you need. There’s nothing to stop parents or grandparents from paying income protection premiums for a younger member of the family, particularly if they are renting or starting out on the property ladder and can’t afford them.

 

  1. Prepared for later-life care?

It may seem a long way off, but the Covid-19 outbreak has shown us all that our lives can change in an instant. A will is something that should be reviewed on a regular basis, as it sets out not only who your assets will go to, but also when. Power of attorney (POA) can be especially important, and it’s essential in long-term care. This is an area where financial advice is enormously valuable. Long-term care planning is difficult, and too often people ask for advice when they are already in or approaching a crisis, when it’s likely too late to make a significant difference.

 

  1. Avoiding gaps in inheritance and legacy plans 

Inheritance Tax legislation changes frequently, and because you don’t know when you are going to die, it can be difficult to cover every possible gap, even with a will in place and some form of legacy planning. The closest option is often ‘whole of life’ cover, which can pay out in trust as a legacy or help family cover any Inheritance Tax liabilities. One of the great things about protection policies is that they can be the solution to a range of different problems.

 

  1. Involve your partner and family

Many families remain reluctant to talk about money issues. Consider working with a financial advisor who can bring the family together to ensure that all the necessary issues are discussed among the people who need to be involved. An advisor can facilitate the discussions (without emotional involvement) and offer guidance.

 

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Finance

PAYROLL AGILITY IN THE CORONAVIRUS CRISIS – HOW FINANCE FIRMS CAN ACHIEVE IT

COVID-19

by Hannah Grimshaw, BPO Payroll Lead, Symatrix

 

The government has published guidance with regards to the next steps for the Coronavirus Job Retention Scheme (CJRS) and furlough – and that will have implications for almost every business operating in the UK today, including those working across the financial sector. One big change is that the furlough scheme closed to new entrants on 30th June, meaning that from 1st July employers can only claim in respect of employees who had been furloughed for a minimum period of three weeks before 30th June.

From 1st July as part of the government’s guidance on the next steps for the CJRS and furlough, employers will be able to bring furloughed staff back part time and will be able to claim through the CJRS for non-working time – otherwise known as flexible furlough.

Furthermore, as of 1st July, the three-week minimum claim period for furloughed employees has changed to one week, and from 1st August the level of government grant will start to reduce and employers will be required to contribute to the wage subsidy on a phased basis. These changes in themselves will mean that employers have a number of considerations to factor in relating to payslips and flexible furlough, post-employment notice pay, pay in lieu of notice, redundancy pay and parental leave.

Hannah Grimshaw

In addition to this, on 26th June 2020, the government proposed amendments to the Finance Bill 2020 to protect individuals affected by Furlough, reduced hours or unpaid leave because of COVID-19. The new clause 32 ensures these circumstances, will not negatively impact the tax advantage of the enterprise management incentives (EMI) scheme membership. The new rules apply initially to the period between 19th March 2020 and 5th April 2021 with the potential for extension by the Treasury until 5th April 2022.

All of these changes are food for thought for finance organisations, or any business in general, and they will need to ensure that they have flexible and agile HR and payroll processes in place in order to manage them effectively. So how can finance organisations ensure that this is the case and that they are set up to be as agile and flexible as possible to deal with these processes through the pandemic and beyond?

 

Finding a Solution

To manage the requirements outlined above, organisations need a great operating model for payroll.  Running an all-in-one approach to HR and payroll will make a significant difference in ensuring that businesses have the agility to make adjustments to payroll and manage claims processes to HMRC quickly and efficiently in these difficult times all wrapped with strong governance and controls that the ‘one’ solution brings.

If an organisation’s payroll engine is fed by separate HR, time and labour and recruitment systems (HCM), the data transfer / collation processes will require interface creating & maintenance and almost certainly manual intervention, which introduces risk into any process. If a process is 100% automated, it will be quicker and deliver fewer errors than a process with human intervention.  In contrast, a single cloud-based HCM and payroll system removes the requirement for data transfer and manual interventions.

Managed services can also have a key role. The benefit of outsourcing HCM and payroll to an expert partner is that HR professionals can instead concentrate on  the positive HR activities to both the HR and organisation strategy and that can in turn help drive operational agility. Businesses that have trust-based partnerships with managed service providers can draw on the expertise of those providers that have been though these processes multiple times with other clients.  Managed services providers can provide expertise in a range of different areas, including how furlough is likely to impact a business right through to providing help with reports for making claims to HMRC, for example.

It is also important that every business, including those in the finance sector, adhere to the highest standards of data security and cyber-security, especially with large number of employees working from home. Being certified to ISO27001 enables finance businesses to ensure processes, procedures and IT systems are annually externally audited to make certain data is secure. With a Cyber Essentials certification or accreditation to FSQS, finance businesses can guard against the most common cyber-threats and demonstrate their commitment to cyber security.

The key point, however, is that a single HCM and payroll system, delivered as part of a managed services approach can be an ideal platform for increased security; less risk and enhanced agility – key benefits for any finance firm, especially in these difficult times.

 

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