Streets Talks To: Droit’s RegBrain

Julia Streets: Hi Craig. Now I’ve heard you talk about a concept of regulatory brain recently. Before we get into it, just give us a bit of context in terms of Droit and also the clients you’re helping.

Craig Butterworth: Yeah, well, how do you explain a complex technology platform that touches almost every aspect of the transaction lifecycle in just a few moments? Well, let me try and give it a go over the course of this podcast. And, yeah, I’ll start by setting the scene.

So, we have over 25 of the largest financial institutions in the world as clients. We have six different product lines which span right across the transaction lifecycle. So from client readiness, enabling salespeople to get definitive answers on things like ready-to-trade status of clients, through to trader mandates and cross-border booking model controls. And then into the post-trade space, we have trade transaction reporting, position reporting, and exchange-traded derivatives reporting.

The thing that is common to all of those use cases is that we enable our clients to ensure complete compliance with a whole multitude of prescriptive regulations and internal policy requirements and all with gold standard auditability, traceability, and transparency to each decision that our platform makes. So in this way, our Adept platform makes millions of decisions across thousands of regulations every single day.

Julia Streets: So as you’re working with all these global financial institutions, what are some of the common themes that come up?

Craig Butterworth: Well, as we onboard our clients, what we find is that whilst they all have their own specific flavors, they all share some common challenges which we help them address.

So running through those, lack of consistent enterprise or even division-wide regulatory rules application and oversight is one. Siloed controls infrastructure, often by asset class, region, and or trading application, is another, and that means that intelligence doesn’t flow from a single point. Many compliance decision-making processes are manual and or attestation-based rather than automated and systematically applied. And almost all of our clients have historically struggled with having disparate and often duplicative places to update when a given rule or policy changes.

As a result, firms have really, a patchwork of manual siloed controls, which they use to try to ensure compliance, but frankly, they’re all pretty inefficient, prone to error, and hard to evidence. So when we work with our clients, we find they rapidly see the benefits of using Droit and they want to expand their use right across the transaction and client lifecycle, whether they’ve started with us in pre-trade and they move us to post-trade or start with us post and expand into pre.

And so as a result, over time, we end up with a number of clients who have enterprise-style agreements with us where they get access to the complete set of Droit’s existing product capabilities all at no marginal cost. And in this way, they use Droit as a strategic regulatory brain making multiple decisions right across the transaction and client lifecycle. And this means they have one single place to update when rules, regs, and policies change. That’s significantly reducing the cost of that change and reducing the operational risk of getting those changes wrong.

Julia Streets: And that makes perfect sense because this whole quest to reconcile silos is a nightmare and it’s a priority for many organizations as well. I mean, if we were to look at that from a regulatory compliance point of view, share some insights on that.

Craig Butterworth: Yeah, well, I’ll I’ll try to bring it to life with an example which is particularly hot at the moment, given some recent fines relating to it.

Something which has caught out a number of banks is where once upon a time when they were building a new trading application for a particular asset class, they took the view that some of the regulatory obligations associated with it were relatively simple, in inverted commas. Hence, they made the decision to hard-code those regs directly into the application. And as time went on, inevitably, the devs that built the application gradually leave or they move into other areas of the bank. And equally, inevitably, sooner or later, regulations change and banks have to stand up projects to make the necessary updates.

But by now, those regs may live in multiple different applications inside the bank. And so when they update those systems, firms can be caught out by not realizing that, you know, that maybe just because they’ve updated it in one system, it doesn’t flow down to all the others. Or maybe they just didn’t realize that a particular system had a rule hard-coded into it. And in fact, there are recent examples of banks who have been operating for years, committing to millions and millions of trades where unknowingly they’d been applying an outdated version of a regulation because they’d never realized, as I say, it had been hard-coded there and it was a place they needed to update.

And if you think about it, it’s really your worst nightmare if you’re the COO of a markets business or head of regulatory reporting, et cetera. But by using Droit to removing that tight coupling of regulations to specific applications and instead to inject Droit’s regulatory intelligence and decision-making capability via API into a mix of their internal and other vendor applications. Firms can do away with those risks while simultaneously reducing their marginal cost of change and also really importantly benefiting from the Droit consensus. In other words, joining the safety of 25 plus other firms who are also using Droit’s rules.

Julia Streets: And I think that’s really important because part of it’s about getting control right the way across the organization. The second is dealing with the relentless changes and that can’t be helping, but then also getting consensus out into the industry as well. But those rule changes, I mean, that must be such a headache.

Craig Butterworth: Yeah, a huge headache. Rule changes add to the complexity. And without Droit, rule changes inevitably need to be choreographed across lots of different applications, as I say, lots of different individual workflows even that have to be updated rather than just updating them in this one single central location.

So, for non-clients of Droit, firms often need to hire consulting firms or more staff to carry out this work. And what that all means is that, regulatory changes cost a lot more and consume much more management bandwidth than is really necessary. On the other hand, for clients of Droit, we provide them with updated versions of the rules at no incremental cost. We give them to clients well in advance of the go-live dates, and we provide them with functionality which makes it easy to understand the change, plus run the different versions of rules against a portfolio of trades to ascertain what the impact will be on their business.

Julia Streets: Which just sound a bit like there’s one RegBrain to rule them all. Is that a bit extreme?

Craig Butterworth: Yeah, I think that’s maybe a bit extreme, but yes, a central regulatory brain where decisions are made that apply right across the transaction lifecycle is exactly the right way to think about it. And where clients do do that, there are lots of benefits which flow from it.

To start with, every single decision which the platform makes, irrespective of where it is on that transaction lifecycle, each of those decisions have their own unique decision ID. So if you ever need to prove to a regulator that you did the right thing, it’s a matter of clicking the decision ID hyperlink to take you to a visual representation of that decision in our logic viewer as a decision tree. And then if you need to, you can click on any of the decision nodes and you’re taken to the exact pinsite or paragraph of the underlying regulatory text or internal policy document associated with that node.

So as a result, you have an unbroken link between the decision itself and the rule, reg, or policy which made it the compliant decision at the time it was made. And consequently, banks no longer need to carry out complex trade reconstruction exercises. They’re very expensive, they take a lot of time, but they have to do that without Droit because they need to splice together lots of different sources of information across disparate systems. So in that way, using Droit as an alternative is really a huge step forward in terms of efficiency and control.

Julia Streets: And you’re using this or clients are benefiting from this today. What sort of feedback do they give you? What difference does it make to their lives?

Craig Butterworth: I mean, the feedback is pretty much uniformly positive, I would say. And it’s really feedback that we receive across a mixture of tier-one and tier-two global banks. And we also recently signed our first African bank, which we’re really excited about.

In terms of some of the individuals at those banks who are the ones who get most excited, it really resonates with the COOs, heads of surveillance, heads of operations, heads of regulatory reporting, digital transformation, etc. And they just love the fact that the decision-making engine is front and center across that complete transaction and client lifecycle.

A recent theme which has been emerging over the course of this year with our most forward-looking clients is to apply a shift-left mindset to regulatory decision-making in order to drive significant savings in downstream operations by ensuring that the right data is captured at the point of onboarding a new client or setting up a new trading product. And by applying Droit earlier in that lifecycle, firms can ensure that a complete set of the right data is captured up front.

And in so doing, they avoid a whole multitude of issues flowing downstream into operations, which otherwise would require a lot of people and expensive tech to deal with, to get to really deal with all those breaks and associated reconciliation work which needs to be done to address. And as such, this represents a really a massive opportunity to save huge amounts of operations run-a-bank cost by taking this approach. So in short, using Droit’s Adept platform as a centralized decision engine, i.e., a regulatory brain, is truly a transformational way for firms to approach compliance.