Regulatory compliance is about to take a leap into the 21st century, and beyond, as IBM announced that it plans to acquire Promontory Financial Group, a “global market-leading risk management and regulatory compliance consulting firm.”
The purpose of the acquisition? To combine the financial regulatory experience that resides within Promontory with Watson, IBM’s artificial intelligence computer system to build a comprehensive service to help financial institutions comply with their regulatory requirements.
According to the Wall Street Journal, Promontory was founded in 2001 by Eugene Ludwig, a former Comptroller of the Currency, and boasts a “small army of former senior regulators and government officials to advise financial firms.”
The company is familiar to many in the housing business, as Promontory made headlines a few years ago when it was revealed that Promontory received nearly $1 billion to review foreclosure files from 2009 and 2010 as part of the Independent Foreclosure Review.
Now, Promontory is combining with IBM to bring AI to the banking business.
According to details from IBM and Promontory, the deal will see the “capabilities of Promontory combined with IBM's deep industry expertise and Watson’s cognitive capabilities will directly address the massive operational effort and manual cost of escalating regulation and risk management requirements.”
According to Promontory, more than 20,000 new regulatory requirements were created last year alone.
“The complete catalog of regulations is projected to exceed 300 million pages by 2020, rapidly outstripping the capacity of humans to keep up,” Promontory said in a release. “Today, the cost of managing the regulatory environment represents more than 10% of all operational spending of major banks, for a total of $270 billion per year.”
Promontory and IBM say that the current and future regulatory situation is “ideally suited” for Watson’s capabilities, and will to allow financial institutions to “absorb the regulatory changes, understand their obligations, and close gaps in systems and practices to address compliance requirements more quickly and efficiently.”
Upon close, Promontory’s professionals will train Watson, which will learn by continuously ingesting regulatory information as it is created and through interaction in real-world applications.
In layman’s terms, Promontory’s team will teach Watson about the complex world of financial regulation, while Watson will also “continually ingest” regulatory information as it is created as well as through interaction in real-world applications.
IBM will then begin to offer Watson’s services to companies to aid them in complying with regulations.
“What Watson is doing to transform oncology by working with the world’s leading oncologists, we will now do for regulation, risk and compliance,” said Bridget van Kralingen, senior vice president, IBM Industry Platforms.
“Promontory’s experts are unsurpassed in this field,” Kralingen added. “They will teach Watson and Watson, in turn, will extend and enhance their expertise. This initial offering of Watson Financial Services is emblematic of the transformative cloud-based solutions that IBM Industry Platforms will bring to clients.”
As Karlingen said, the combination of Watson and Promontory will be the first offering for what IBM is calling “Watson Financial Services,” through which IBM will offer solutions for tracking regulatory obligations, expectations and control requirements, as well as solutions that address specific compliance needs.
“We believe the future of business and regulation will be driven by the need for advanced technology alongside deep subject-matter expertise,” Ludwig said.
“Combining Promontory’s expertise with IBM’s extraordinary technological capabilities such as Watson will permit us to directly address our clients’ greatest challenges in innovative and powerful ways,” Ludwig continued. “It will enhance our mutual commitment to risk management and regulatory compliance excellence, and our results will benefit customers and the overall financial system.”
Under the terms of the deal, Promontory will operate as a wholly owned subsidiary of IBM.
The acquisition is expected to close in late 2016. Financial terms of the deal were not disclosed.