By Stephanie Vaughan, Global Legal Practice Director, iManage RAVN
No industry has escaped the impact of the COVID-19 pandemic, but financial services has had a particularly hectic year.
The pandemic threw a wrench into the gears of the global economy, bringing “business as usual” grinding to a halt. Many businesses and individuals found themselves unable to meet their financial commitments, requiring huge government economic interventions to stave off financial collapse and a potential global economic depression.
As we look forward to the coming year, financial services firms of all shapes and sizes will need to access every tool in their toolkit to ensure they safely navigate the months ahead. Knowledge management (KM) might just be the secret weapon they’re looking for to not only survive, but thrive, in this changing world.
The two approaches: data analytics versus content production
In recent years, different KM approaches from around the globe have converged.
The US has long incorporated a data-driven approach to KM, focusing on search, structuring data and analytics. In the UK and across other parts of the globe, KM efforts have focused less on data analytics, and more on producing content and knowhow.
For quite some time, these approaches were kept separate – even in organisations that operated internationally. But a cross-pollination has taken place, and US knowledge teams are starting to focus more and more on content curation. At the same time, UK knowledge teams are looking to analytics and data-oriented projects to extract new insights.
As the two approaches merge, KM becomes better suited than ever to deliver value to organisations in new ways. This is for two reasons. First, it enables processes to be defined and helps join the dots between different exercises. Second, it enables knowledge to be delivered to the people who need it in new and better ways.
KM helps to define processes
Within most financial services organisations, innovation and KM have been separate functions. Most of the press coverage and hype has been associated with themes such as AI and blockchain. In the meantime, knowledge managers have had their noses to the grindstone getting on with their work, outside the spotlight.
Increasingly, however, firms are realising that that innovation doesn’t happen on its own. Through lack of adoption of technology or lack of tangible change, people are starting to realise that scaling innovation is part of a wider process that requires an in-depth understanding of internal processes. This, together with increasing acknowledgement of the cost to the wider institution of inefficiencies and lack of processes in a highly regulated environment, is where KM steps in. With a focus both on content creation and data analytics, KM can provide the vital role of increasing understanding around key processes. Only once those processes are understood can technology start to enable real and lasting change.
The upcoming LIBOR transition provides a helpful example. Financial institutions have financial products linked to LIBOR valued at more than USD 350 trillion. LIBOR is due to be phased out at the end of 2021. This means that all documentation underpinning these financial products must be amended so that they no longer refer to LIBOR. This is known as the “LIBOR re-papering” exercise.
The first problem financial institutions face is to identify all those products that do, in fact, refer to LIBOR. Because of the scale on which this exercise must be carried out, it is often not cost-effective to employ humans to undertake this exercise. Instead, financial institutions have deployed AI tools to identify documents that contain references to LIBOR, in order that these documents can be subjected to analysis and amended. This isn’t over-hyped AI: this is the identification of a problem that needs a solution powered by AI.
It is also a problem that could have been lessened if there had been effective KM processes in place. Indeed, it is off the back of repeated regulatory changes such as LIBOR that many financial institutions are beginning to realise just how important KM is. KM plays a vital role here to help with remediation – i.e. cataloguing the processes and best practices that must be applied to this exercise, so that financial products can continue into 2022 and beyond. Additionally, KM also assists by allowing financial institutions to have in-depth knowledge and data insights across their contracts. An effective KM system allows firms to combine content-based and data-centric approaches making solving problems such as LIBOR easier.
KM helps to bring discrete processes together
The KM role goes even further, using the LIBOR opportunity to identify other risks during a large-scale contract analysis.
For example, what COVID-19 specific scenarios could these same processes be applied towards? Are there leases in a commercial real estate portfolio that need to be renewed? Are there hidden deadlines contained in contracts that would otherwise be overlooked? LIBOR has presented an opportunity for financial institutions to overhaul their contract management systems. AI plays a role in all of these exercises – but it is KM that it is pulling the strings and spotting the links between what would otherwise be discrete exercises.
No office necessary
Even businesses with the most advanced KM functions have traditionally relied on people “popping their head around your door” to have a chat. As workforces get used to remote working, KM has a huge part to play here.
In a distributed work environment, it is harder for employees to rely on know-how being stored in people’s heads and inboxes. Here, KM only grows in importance, delivering existing best practices and curated content to the knowledge workers who need it to carry out their jobs effectively.
AI again works hand-in-hand with KM here, providing new ways to proactively surface important knowledge assets and offer them up to professionals. The partnership between AI and KM will inevitably lead to Netflix-like suggestions: “people accessing this template also viewed this survival guide.” This partnership is nothing without a KM team focusing on the right content and the right data points.
The post-pandemic world will not be without its challenges, but financial services firms can take comfort in the fact that they have KM as a secret weapon at their disposal, and KM can rightfully and deservedly bask in some of its newfound glamour.
About the author
Stephanie Vaughan is Global Legal Practice Director at iManage RAVN. She leads the team at iManage that engages with law firms, corporates, and professional services firms to help them understand and adopt artificial intelligence technology in a practical manner – while fostering a culture of innovation in their organisations. A lawyer by training, prior to iManage RAVN, she was at international law firm, Allen & Overy, where she worked in the Market Innovations Group and the Derivatives and Structured Finance Group, delivering global technology focused projects to clients. For these projects, she was involved in everything from design to delivery and ongoing running of the programs.
The Evolution and Challenges of Crypto Regulation
Cryptocurrency regulations are evolving quickly around the globe with authorities responding to developing risks professed by criminals exploiting the latest payment methods to mask and launder the profits from their crimes.
According to William Je Founder & CEO, Hamilton Investment Management Ltd, this has warranted the introduction of a more stringent level of due diligence by additional bodies to introduce preventative measures.
William Je Founder & CEO, Hamilton Investment Management Ltd explains: “The past ten years has seen several structural changes in Know Your Customer (KYC) and anti-money laundering (AML) regulations in both Europe and across the world. High-profile money laundering cases and the penetration of illegal monies into global markets have caught the attention of regulators.
“As regulators improve their understanding of these criminal practices, AML requirements have also been improved. However, these improvements have been a reactive process.”
To address the challenges of the blockchain ecosystem, the European Union has started to introduce financial regulations that further bolster the regulatory system in order to improve licensing models. Many member states are regulating crypto assets individually, and Germany is leading the way in being the first to regulate.
Je continues: “These national driven regulations clearly point to a future pathway for crypto companies, outlining the requirements for obtaining and maintaining a financial license from the regulator.
“Compliance, however, is to my mind essential as it not only boosts investor confidence but adds a necessary layer of protection to investors.”
As crypto evolves, so have regulatory bodies’ efforts to monitor, address and enforce restrictions. The most prominent is the Financial Action Task Force (FATF), which details guidance and determines best practices in anti-money-laundering practices and combating the financing of terrorism.
FATF Recommendations number 16, better known as the ‘travel rule’, which requires businesses to collect and store the personal data of the originators and the beneficiaries in blockchain transactions, is the most notable.
Je concludes: “What does this mean? In theory, access to this data will enable authorities to have better oversight and enforcement of crypto market regulations. In other words, they’ll know exactly who is doing exactly what.
As we have always argued – transparency is key. We need to regulate crypto as an asset class with efficacy, which necessitates legislation that is applicable specifically to digital assets and does not hinder the market.
The criminal financial trade which arguably encompasses money laundering, illegal weapons sales, human trafficking, is also international. Thus, cracking down on it is, out of necessity, an international effort.
The decentralised nature of blockchain, which runs contrary to the central-server standard we know and use nearly everywhere, presents a formidable challenge here. Rules and regulations for traditional financial institutions are being implemented wholescale into the crypto sector. We believe that this is arguably wrong footed as it ignores the innovation and uniqueness this asset class and its underlying technology entails.
Traditional forms of regulation from the fiat world do not reciprocally apply to every aspect of crypto nor to the fundamental nature of blockchain technology. However well-intentioned they may be, because these imposed regulations are built on an old system, they must be adapted and modified.”
How bug bounty programs can help financial institutions be more secure
Rodolphe Harand, Managing Director at YesWeHack
Financial services have been one of the most heavily targeted industries by cybercriminals for several years. One alarming stat from the Boston Consulting Group found these firms to be 300x as likely as other companies to be targeted by cyberattacks.
Furthermore, the pandemic has led to a significant increase in the number of cyberattacks targeting financial institutions (FIs), with around 74% experiencing a spike in threats linked to COVID-19.
With FIs holding some of the largest collections of sensitive and private data, it’s clear they will remain an attractive target for malicious actors, especially as any data stolen can be used for fraudulent activities. This leads to the reputational damage of the financial entity that was compromised and has a knock-on effect in terms of monetary and reputational damage to affected customers.
For CISOs at FIs, the conundrum faced is how do you protect intellectual and customer data, and ensure accountability and transparency for clients and stakeholders, at a time when the pandemic has created budget constraints. Research from BAE Systems found that last year alone, IT security, cybercrime as well as fraud and risk departments had their budgets cut by a third.
Below we look at how bug bounty programs can help to address these pressing issues.
Protecting valuable data
Protecting customer and intellectual data has always been a top priority for FIs. However, as opportunistic cybercriminals have a lot to gain by stealing this valuable data, there is a constant evolution of threats, which means FIs must stay on their toes. By deploying a bug bounty program, FIs can work with ethical hackers that have a wealth of experience and unique skills when it comes to identifying security weaknesses within a FI’s defence, thus helping to implement effective security measures to help prevent data breaches.
Building trust among various stakeholders such as customers, suppliers and investors is critical for achieving business goals. By deploying a bug bounty program, FIs send out a message that they care about protecting the security of the data of those they work with – which in turn can have a cascading effect resulting in better business performance.
For FIs to win customers and keep them happy, amidst the growing threat of neo banks and customer-centric fintech organisations, speed of innovation is crucial. As such, many FIs have adopted an agile approach to build, test, and release software faster to bring online and mobile banking solutions to market quicker. However, this can create frictions between development and security teams. Security mandates are deemed to be unnecessarily intrusive and a cause of delayed application development and deployment.
Yet, with DevOps teams needing to build and deploy applications faster than ever before, an epidemic of insecure applications has emerged. According to Osterman Research, 81% of developers admit to knowingly releasing vulnerable applications, while research from WhiteSource found 73% of developers are forced to cut corners and sacrifice security over speed.
With developers often not having the time, tools, skills, or motivation to write impeccably secure code, there is an evident need to provide developers with more support when it comes to building applications securely Fortunately, bug bounty programs can provide a “fact-based” financial implication of inherent security flaws within the process. This makes it possible to hold development teams and service providers accountable for creating or delivering insecure products, thus addressing inherent security gaps within the business units and helping to drive continuous improvement.
Moreover, security awareness and education of developments teams can be improved significantly for those developers that are directly involved with the management of vulnerability reports for their bug bounty programs. This is because, the mere fact of exchanging information with ethical hackers, or assimilating the thinking of a potential hacker and having proof of concepts of vulnerability exploitation on their application components, naturally accelerates consideration of security early in the development stage and provides ongoing learning.
Get more return on your investment
According to Gartner, 30% of CISOs effectiveness will be directly measured on their ability to create value for the business. When security budgets are challenged, CISOs need to demonstrate business value through initiatives designed to enhance efficiency whilst stretching the dollar.
This is where bug bounties can help tremendously. Compared to conventional penetration testing, bug bounty offers a fast, complete, and measurable return on your security investment, with businesses only paying out for successful discovery of vulnerabilities. Equally, businesses get access to hundreds of ethical hackers that can test their programs, each with their own unique skillsets as opposed to only one skilled researcher testing the network. This results-driven model ensures you pay for the vulnerabilities that pose a threat to your organisation and not for the time or effort it took to find them.
Bug bounty programs also deliver rapid vulnerability discovery across multiple attack surfaces. With this approach, organisations receive prioritised vulnerabilities and real-time remediation advice throughout the process to accelerate the discovery of, and solution to vulnerabilities.
Another appeal of bug bounties is that due to the continuous nature of testing, more vulnerabilities are found over time as opposed to pen-testing. This is key to financial institutions that require agility to keep up with the continuous roll-out and updates of applications.
The cornerstone to a successful security programme
The risk posed to financial institutions by cyber threats will only continue, as evidenced by the number of data breaches seen in recent times. The COVID-19 pandemic has only exacerbated these risks, especially with almost all FIs having needed to shift to a remote working environment – which has only widened the attack landscape.
For FIs, a bug bounty program should be considered a fundamental cornerstone of any security strategy, with it being a modern-day cybersecurity solution that is well-equipped to tackle the immediate security challenges they face. In doing so, FIs will not only prove to customers and stakeholders their commitment to data protection and security but this will also be help them to avoid the monetary damages that could be imposed by regulators if a breach was to take place.
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