Name: Regtech and financial crime operations: How can technology enable business growth?
Uploaded: 2023-09-28T08:09:24.269Z
Duration: 676.64
Description: Shabbir M Husain, Director, Global Sanctions Compliance, Silicon Valley Bank, joins us at FinovateFall 2023 to discuss financial crime, regtech, compliance culture, and more.

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FinovateFall 2023

INT.005 Shabbir M Husain.vtt

English

{{00:00:04}}
David Penn: Hi, I'm Research
Analyst David Penn with Finovate.

{{00:00:07}}
We're  here at FinovateFall
2023 in Times Square, New York.

{{00:00:10}}
Joining me today is Shabbir M.

{{00:00:12}}
Husain.

{{00:00:12}}
He is the Director of Global Sanctions
Compliance with Silicon Valley Bank.

{{00:00:16}}
Thank you very much for joining us.

{{00:00:17}}
Thank you for having me.

{{00:00:18}}
Fantastic to have you here.

{{00:00:19}}
Fantastic to have Silicon Valley Bank
here and being a part of Finovate.

{{00:00:23}}
I thought maybe to start off, you
could tell us just a little bit

{{00:00:25}}
about yourself and the work that
you do at Silicon Valley Bank.

{{00:00:28}}
Shabbir M Husain: Certainly.

{{00:00:29}}
My name is Shabbir Hussain.

{{00:00:30}}
I manage sanction systems
globally for the bank.

{{00:00:33}}
What that entails is a governance
and configuration of our screening

{{00:00:37}}
systems, so that we have an
effective sanction screening program.

{{00:00:40}}
David Penn: So one of the things I'd love
to talk to you about to start off with

{{00:00:43}}
is this landscape of financial crime.

{{00:00:45}}
One of the ironic things here at a place
like Finovate, we're seeing so many

{{00:00:48}}
interesting technologies, everybody's
getting excited, and I almost feel

{{00:00:50}}
like folks on you on the other end
are like [sigh], on a certain level.

{{00:00:54}}
Wonderful.

{{00:00:55}}
Now here's something else
we've gotta deal with.

{{00:00:56}}
So I'm curious in terms of just how
that landscape has changed what you've

{{00:00:59}}
seen, what are some of the things that
really catch your eye about things

{{00:01:02}}
that you need to be concerned about?

{{00:01:03}}
Shabbir M Husain: Sure.

{{00:01:04}}
First and foremost we are
helped to serve the business.

{{00:01:07}}
We are helped to ensure that bank's
grow in a risk effective manner.

{{00:01:11}}
Having said that very well aware
of the advancement in, the payment

{{00:01:16}}
space, for instance there are
new financial instruments being

{{00:01:19}}
introduced by way of cryptocurrencies.

{{00:01:21}}
There are the pace of money
has significantly improved

{{00:01:26}}
by way of faster payments.

{{00:01:27}}
Now we have real time payments,
money being moved in a few seconds

{{00:01:30}}
as against few days with wires.

{{00:01:32}}
All of this comes with a fairly
nuanced financial risk, right?

{{00:01:36}}
Financial crimes risk.

{{00:01:39}}
Let me give you an example out here.

{{00:01:40}}
Cryptocurrency, for instance, there
is some level of anonymity in terms

{{00:01:44}}
of who is transferring the money
to whom it could transfer, right?

{{00:01:47}}
All of this is required to be known when
you're thinking about financial crimes

{{00:01:50}}
risk, especially sanctions evasion,
anti-money laundering, and so forth

{{00:01:54}}
.
There are companies built around
identifying the source and

{{00:01:58}}
the benefit of the beneficiary
for each transaction, right?

{{00:02:01}}
When you think about faster payments,
there is a few seconds in which you

{{00:02:06}}
have to do all forms of real time
screening before the money needs to

{{00:02:09}}
be transmitted to the other party.

{{00:02:11}}
So all of this requires rethinking
about how we evaluate financial crimes

{{00:02:16}}
risk when we are dealing with such
advanced  products and services.

{{00:02:21}}
David Penn: I appreciate the way
that you say that it's not just a

{{00:02:23}}
matter of there being more risks
because of new technologies, but

{{00:02:25}}
the risks themselves are minuance.

{{00:02:27}}
And I, like the example you
used, I think, the de -anonymize

{{00:02:29}}
transactions, things like that.

{{00:02:31}}
Always reminds me of the old saying
of, is it a bug or a feature?

{{00:02:33}}
It's sometimes it's both
and that's the challenge.

{{00:02:37}}
Speaking of the challenge, given all that
you've said how, in the world is a bank

{{00:02:42}}
going to keep up with those folks who
are professionally trying to beat them?

{{00:02:46}}
Shabbir M Husain: So I certainly believe
this is not just a human problem.

{{00:02:50}}
You have to solve it by
leveraging technology.

{{00:02:53}}
And I know I'm beating the dead horse
here about AI and machine learning,

{{00:02:57}}
but the reality is, that is what is
going to help us manage our risks

{{00:03:01}}
within financial crimes effectively.

{{00:03:04}}
Case in point, SVB and now a part of
First Citizens Bank, we were in the

{{00:03:10}}
process of leveraging a machine learning
solution through which we can reduce

{{00:03:15}}
our false positive alert volume as it
pertains to sanctions screening, right?

{{00:03:18}}
So it looks at various factors in
determining whether or not a hit is

{{00:03:22}}
a false positive or a true positive.

{{00:03:25}}
In sanctions or financial crimes
in general, the problem is of

{{00:03:28}}
too many false positive alerts.

{{00:03:30}}
And because there is strict liability
there is very little maneuver in

{{00:03:33}}
terms of missing a true positive.

{{00:03:35}}
So there is too much focus
on true positive for which

{{00:03:38}}
the productivity is very low.

{{00:03:39}}
Most of it is false positive, so
this certainly requires leveraging

{{00:03:43}}
machine learning so that we can grow
the bank effectively without having

{{00:03:47}}
an army of people to be able to
disposition the errors being generated.

{{00:03:50}}
David Penn: That's interesting.

{{00:03:51}}
The point you make about false positives,
I think, is something a lot of us don't

{{00:03:54}}
think about necessarily, but it's funny.

{{00:03:55}}
We're talking with some colleagues today
and I'm not going to name any particular

{{00:03:59}}
social media or entities or any particular
colleagues, but we found some colleagues

{{00:04:02}}
who are really having some false positive
problems with a variety of things.

{{00:04:05}}
And I think it really draws home the
point that it's not just about making the

{{00:04:08}}
bad guys stay away, but making sure the
good authorized folks are able to get the

{{00:04:11}}
services that they pay for and they need.

{{00:04:13}}
Shabbir M Husain: Exactly.

{{00:04:14}}
And before even approaching
technology, I think effective

{{00:04:17}}
risk assessments goes a long way.

{{00:04:19}}
Yeah.

{{00:04:20}}
Risk assessment being done at the time
of new product introduction or expansion

{{00:04:24}}
into new geographies which are considered
historically considered high risk.

{{00:04:28}}
So such risk needs to be evaluated and
it needs to be made sure that this risk

{{00:04:33}}
which we are adopting with such new
underwaters is in line with the risk

{{00:04:36}}
appetite of the financial institution.

{{00:04:38}}
Because if it is not, then that's a
bad business decision to begin with.

{{00:04:42}}
If it is, then leveraging these cutting
edge technologies might make sense.

{{00:04:47}}
To streamlining your bank operations.

{{00:04:50}}
David Penn: Yeah, that's a great point.

{{00:04:51}}
So often, we certainly hear in the tech
space, the idea, it's a bit outmoded

{{00:04:54}}
now, but the, go fast and break things.

{{00:04:56}}
But even pulling back from that, idea of
where you want to grow, you want a new

{{00:04:59}}
market, we're not there, let's get there.

{{00:05:00}}
And you just see how constantly
all of these opportunities do

{{00:05:03}}
have their challenges, do have
the I's that have to be dotted and

{{00:05:05}}
the T's that have to be crossed.

{{00:05:06}}
And it's really interesting to see that
they really do have to go hand in hand

{{00:05:09}}
if you're going to do it successfully.

{{00:05:11}}
Shabbir M Husain: And the interesting part
you mentioned is go fast and break, right?

{{00:05:14}}
That has been the technology approach
towards solving business problems.

{{00:05:17}}
But when you're dealing with movement of
money, there is strict liability, right?

{{00:05:21}}
Which means one mistake
is one too many, right?

{{00:05:24}}
We have seen time and again.

{{00:05:25}}
There was an instance, and I'm not
calling  out the particular fintech,

{{00:05:28}}
but they launched a financial product.

{{00:05:30}}
Within three days of launching
it, they had to rescind it only

{{00:05:33}}
because move fast, that philosophy
does not work well with regulators.

{{00:05:38}}
So I think it has to be thought through
and there has to be a culture of

{{00:05:42}}
compliance set across the organization
by exec leadership, and then hold

{{00:05:47}}
various parties accountable to it by
engaging financial crimes early on

{{00:05:51}}
in the process of creating these new
products, delivering new solutions

{{00:05:55}}
and services across the globe.

{{00:05:57}}
David Penn: I really like that that
line, the culture of compliance.

{{00:05:59}}
Again, without bashing the
tech traditionalists, but just

{{00:06:02}}
that idea of, oh, if there's a
corner we can cut, let's cut it.

{{00:06:05}}
And saying, slow down on that.

{{00:06:06}}
At least in terms of financial services
and fintechs, we need to have a culture

{{00:06:09}}
that respects the boundaries so that we're
able to go forward in a proper way without

{{00:06:12}}
having, yikes, a three day callback.

{{00:06:15}}
Shabbir M Husain: Exactly.

{{00:06:15}}
And I think it's also because in the
traditional banking space, There has been

{{00:06:19}}
a lot of enforcement actions by the U.

{{00:06:21}}
S.

{{00:06:22}}
and other regulators.

{{00:06:24}}
I've not seen that as much in the
fintech space, and I think it's

{{00:06:27}}
just a it's a matter of time once
because the philosophy has to change.

{{00:06:31}}
There has to be an overall philosophy
of compliance, and certainly there are

{{00:06:34}}
certain fintechs which are taking this
very seriously, as they move ahead.

{{00:06:39}}
But certain others, I think
they will learn fairly soon.

{{00:06:42}}
David Penn: You mentioned
the regulators, and I want to

{{00:06:43}}
get to them in just a minute.

{{00:06:44}}
But first, I want to talk about, we talked
about things that banks do to keep pace.

{{00:06:48}}
And I'm curious about the idea of
investing in technology that can help

{{00:06:50}}
them with fighting financial crime.

{{00:06:53}}
Is that a place where you think these
banks really need to start spending

{{00:06:55}}
a little bit more money and time?

{{00:06:56}}
Shabbir M Husain: Certainly.

{{00:06:57}}
Long term growth calls for effective and
efficient financial crime operations.

{{00:07:03}}
And, like I mentioned
earlier, that is perhaps...

{{00:07:06}}
One of the established ways of achieving
that efficiency and effectiveness is

{{00:07:11}}
by leveraging advanced technologies,
including robotic process automation

{{00:07:15}}
for removing some of the redundancy
in business operations within a

{{00:07:18}}
bank and also leveraging certain
elements of machine learning and

{{00:07:23}}
AI as well in their operations.

{{00:07:24}}
So all of this is essential.

{{00:07:26}}
Otherwise, as you scale up as an
institution it would just be untenable

{{00:07:30}}
to continue with the way we have been
doing things with just human involvement.

{{00:07:34}}
I would like to give an example out here.

{{00:07:35}}
Six years ago when SVB decided to go
on this growth path and become what

{{00:07:42}}
it is today, a 220 billion assets
under management organization, back

{{00:07:47}}
then we bought 40, 50 or 60 billion.

{{00:07:51}}
And one of the challenges we had
in terms of growing was that our

{{00:07:54}}
screening operations, our overall
financial crime operations were

{{00:07:57}}
not a well oiled machinery, right?

{{00:07:59}}
As a result, we had too
many false positives.

{{00:08:01}}
And as you're aware, each time
there's a false positive, we

{{00:08:04}}
can't process that payment.

{{00:08:05}}
If you can't process payments, we can't
grow and scale as an institution, right?

{{00:08:08}}
So back then executive
leadership got involved.

{{00:08:12}}
They had a very strong focus on
how can we build a fairly strong

{{00:08:16}}
world class compliance program.

{{00:08:18}}
And a result of that, six years since,
is that we have replaced our systems.

{{00:08:21}}
They're well oiled, tuned now perhaps
having 90% fewer false positive

{{00:08:27}}
alerts than what we had six years ago.

{{00:08:29}}
As a result, we could scale, grow
it up from a 50 billion institution

{{00:08:32}}
to a 220 billion institution.

{{00:08:34}}
David Penn: Wow, fascinating.

{{00:08:36}}
Again, you mentioned
regulators a moment ago.

{{00:08:37}}
It's something that
always have to address.

{{00:08:40}}
In terms of how you see it,
what is the appropriate role for

{{00:08:42}}
regulators in terms of helping
banks, helping protect end users  in

{{00:08:46}}
this situation we're talking about?

{{00:08:47}}
Shabbir M Husain: I think one thing very
important is ongoing engagement of the

{{00:08:51}}
regulators with financial institutions.

{{00:08:53}}
Just to understand this emerging risks.

{{00:08:56}}
Regulators have published some very
strong mandates on how to deal with

{{00:09:00}}
financial crimes in more established
payment mechanism, in more established

{{00:09:05}}
financial instruments, such as wires.

{{00:09:08}}
But I think there is more to come and
perhaps more mandates and guidance to

{{00:09:13}}
be delivered in areas of emerging risk.

{{00:09:15}}
For that, first, what needs to be
understood is what is that risk?

{{00:09:18}}
So for that, I think engagement
with the fintechs of the world, with

{{00:09:21}}
the crypto fintechs of the world,
with banks who have been engaging

{{00:09:24}}
with such advanced instruments and
payment mechanisms needs to be done.

{{00:09:28}}
That is step one.

{{00:09:29}}
And then I think ongoing monitoring of
compliance programs at the financial

{{00:09:34}}
institutions and guiding them through,
as against penalizing, more guiding them

{{00:09:38}}
through: how can you make things better?

{{00:09:39}}
That is essential.

{{00:09:41}}
This, collaborative partnership
is essential moving forward.

{{00:09:44}}
David Penn: Yeah, that's really, good
to hear that it's engagement, not

{{00:09:47}}
necessarily some sort of adversarial
relationship that's really going to carry

{{00:09:49}}
both sides for getting the regulators
understand how to do their job better and

{{00:09:52}}
obviously helping the banks do theirs.

{{00:09:54}}
I thought maybe to wrap up, you've
mentioned so many different things, I

{{00:09:57}}
think, that are food for thought in terms
of things that banks should be doing, but

{{00:10:00}}
maybe if you had one or two of the things
that you say this is really what we think

{{00:10:03}}
financial institutions need to be focusing
on going forward to financial crime.

{{00:10:07}}
What would be those things
you might highlight?

{{00:10:09}}
Shabbir M Husain: I think having
effective risk assessment programs,

{{00:10:14}}
having a culture of compliance driven
right from the top, and then holding

{{00:10:19}}
people accountable, holding groups
accountable for such activities as new

{{00:10:24}}
products and services are being launched.

{{00:10:26}}
That is essential moving forward.

{{00:10:28}}
Everything else, in my opinion, comes
secondary to these three things.

{{00:10:31}}
If you have the right tone set at the
top, and there is willingness to do the

{{00:10:36}}
right thing, then good things happen,
then the right things happen, right?

{{00:10:39}}
You can build effective controls and,
mitigation mechanisms to such risks which

{{00:10:44}}
might be exposed to the institution.

{{00:10:47}}
David Penn: Very, good.

{{00:10:48}}
Again, a lot of food for
thought and incredibly important

{{00:10:50}}
conversation that we're having.

{{00:10:51}}
And one, I think the industry writ large,
is starting to turn more to and pay more

{{00:10:54}}
attention to some of these issues again
so that we can maybe not make some of

{{00:10:57}}
the mistakes that we made in the first
iteration of the fintech revolution.

{{00:11:01}}
Exactly.

{{00:11:01}}
Fantastic.

{{00:11:02}}
Again, thank you very much
for being here with us and for

{{00:11:04}}
being a part of FinovateFall.

{{00:11:05}}
Shabbir M Husain: Thank you for having me.

David Penn: Hi, I'm Research
Analyst David Penn with Finovate.

We're  here at FinovateFall
2023 in Times Square, New York.

He is the Director of Global Sanctions
Compliance with Silicon Valley Bank.

Fantastic to have Silicon Valley Bank
here and being a part of Finovate.

I thought maybe to start off, you
could tell us just a little bit

about yourself and the work that
you do at Silicon Valley Bank.

I manage sanction systems
globally for the bank.

What that entails is a governance
and configuration of our screening

systems, so that we have an
effective sanction screening program.

David Penn: So one of the things I'd love
to talk to you about to start off with

One of the ironic things here at a place
like Finovate, we're seeing so many

interesting technologies, everybody's
getting excited, and I almost feel

like folks on you on the other end
are like [sigh], on a certain level.

Now here's something else
we've gotta deal with.

So I'm curious in terms of just how
that landscape has changed what you've

seen, what are some of the things that
really catch your eye about things

First and foremost we are
helped to serve the business.

We are helped to ensure that bank's
grow in a risk effective manner.

Having said that very well aware
of the advancement in, the payment

space, for instance there are
new financial instruments being

There are the pace of money
has significantly improved

Now we have real time payments,
money being moved in a few seconds

All of this comes with a fairly
nuanced financial risk, right?

Cryptocurrency, for instance, there
is some level of anonymity in terms

of who is transferring the money
to whom it could transfer, right?

All of this is required to be known when
you're thinking about financial crimes

risk, especially sanctions evasion,
anti-money laundering, and so forth

.
There are companies built around
identifying the source and

the benefit of the beneficiary
for each transaction, right?

When you think about faster payments,
there is a few seconds in which you

have to do all forms of real time
screening before the money needs to

So all of this requires rethinking
about how we evaluate financial crimes

risk when we are dealing with such
advanced  products and services.

David Penn: I appreciate the way
that you say that it's not just a

matter of there being more risks
because of new technologies, but

And I, like the example you
used, I think, the de -anonymize

Always reminds me of the old saying
of, is it a bug or a feature?

It's sometimes it's both
and that's the challenge.

Speaking of the challenge, given all that
you've said how, in the world is a bank

going to keep up with those folks who
are professionally trying to beat them?

Shabbir M Husain: So I certainly believe
this is not just a human problem.

You have to solve it by
leveraging technology.

And I know I'm beating the dead horse
here about AI and machine learning,

but the reality is, that is what is
going to help us manage our risks

Case in point, SVB and now a part of
First Citizens Bank, we were in the

process of leveraging a machine learning
solution through which we can reduce

our false positive alert volume as it
pertains to sanctions screening, right?

So it looks at various factors in
determining whether or not a hit is

In sanctions or financial crimes
in general, the problem is of

And because there is strict liability
there is very little maneuver in

So there is too much focus
on true positive for which

Most of it is false positive, so
this certainly requires leveraging

machine learning so that we can grow
the bank effectively without having

an army of people to be able to
disposition the errors being generated.

The point you make about false positives,
I think, is something a lot of us don't

We're talking with some colleagues today
and I'm not going to name any particular

social media or entities or any particular
colleagues, but we found some colleagues

who are really having some false positive
problems with a variety of things.

And I think it really draws home the
point that it's not just about making the

bad guys stay away, but making sure the
good authorized folks are able to get the

services that they pay for and they need.

And before even approaching
technology, I think effective

Risk assessment being done at the time
of new product introduction or expansion

into new geographies which are considered
historically considered high risk.

So such risk needs to be evaluated and
it needs to be made sure that this risk

which we are adopting with such new
underwaters is in line with the risk

Because if it is not, then that's a
bad business decision to begin with.

If it is, then leveraging these cutting
edge technologies might make sense.

FinovateFall

Case Study

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Shabbir M Husain, Director, Global Sanctions Compliance, Silicon Valley Bank, joins us at FinovateFall 2023 to discuss financial crime, regtech, compliance culture, and more.