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Robotics Process Automation (RPA) – A Transformation lever for Risk & Compliance Management

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Robotics Process Automation (RPA) – A Transformation lever for Risk & Compliance Management

Overview

Robotics Process Automation or RPA is one of the digital levers that is fast becoming a tool of choice for many banks to automate processes that are standardized, low on exception, and highly manual intensive. Along with the standard benefits that an RPA implementation brings in, it also helps banks achieve compliance and attain a greater degree of control over end user computing (EUC) processes. The adoption of RPA technologies is gradually gaining momentum with investments pegged to touch nearly USD 1 billion by the end of 2019 with the banking and financial services sector accounting for approximately 40%.  Furthermore, approximately 10 to 15% of these spends is expected to be taken up by the risk and compliance area.

The risk and compliance function is constantly grappling to contain compliance costs, gain better control of processes, maintain the required operational agility to achieve compliance, and improve system efficiency. The efficiency issues arise mainly due to the presence of legacy systems, the need to collate data from multiple lines of business (LoBs), and error-prone manual processes. In such a scenario, RPA comes across as a powerful solution that can help banks to

  • Improve efficiency without tinkering with the existing Legacy systems
  • Provide required agility to scale as per compliance needs
  • Maintain better control on processes through required auditability
  • Automate manual intensive efforts and reduce errors.

RPA adoption levels in Banks

In the banking and financial services industry, especially in the risk and compliance area, the adoption of RPA is still at a nascent stage. Currently most of the investments are being made in running proofs of concept (POCs) to assess the value or the return on investment RPA implementations bring to the table. Like any technology, RPA adoption can occur in many forms (see Figure 1)

Figure 1 – RPA Adoption in Banks

Figure 1 – RPA Adoption in Banks

Initially banks looked at RPA for short term and tactical gains. However, with RPA technology and the concept gaining maturity, more and more possibilities of leveraging RPA for strategic needs are being explored; examples include judgment based tasks and intelligent rule-based automations. Banks have also started looking to integrate RPA with other digital investments in the areas of Machine Learning (ML), Natural Language Processing (NLP), Chabot’s etc. and are gradually progressing towards the desired state of Cognitive RPA.

RPA as a Transformational Lever

Initially RPA solutions were considered tactical fixes. However, as the digital portfolio continues to evolve, RPA is slowly evolving into a transformational lever that combines with cognitive technologies like ML to carry out strategic tasks without impacting the existing IT landscape.  This change in outlook can also be observed in the risk and compliance areas where adoption is gradually moving from simple risk tasks to complex judgement based tasks that involve review and decisioning. Also, banks are investing in RPA at an enterprise level, rather than opting for specific point solutions. These changes clearly indicate that RPA is becoming more and more strategic in nature and banks are undertaking RPA investments to improve efficiencies and save compliance costs.

RPA adoption in Risk and Compliance

In the risk and compliance area, RPA adoption is still in an early stage. Currently, most of the adoption is happening in areas such as KYC onboarding and generation of risk and regulatory reports where the activities are standardized and involve data collation, data aggregation, email integration, and simple rule-based automation to quote a few.

As the concept gains maturity, adoption is spreading to areas like AML alert investigation, credit reviews, risk reconciliation, and generation of high-volume, high-frequency risk reports such as daily LCR reporting. These processes typically involve complex business rules, processing of unstructured data, macros etc.

Figure 2 – Key Risk and Compliance RPA use cases

Figure 2 – Key Risk and Compliance RPA use cases

The banking industry is currently envisioning a target state where RPA can combine with cognitive technologies such as ML, NLP etc. Many banks have started focusing on this and are in the process of identifying use cases that are a good fit. In risk and compliance, judgement based use cases such as limit breach management, risk data quality management etc., are typically good candidates for Cognitive RPA. Though many banks are keen to leverage Cognitive RPA capabilities, they are also cognizant of the fact that it is not desirable to automate judgement based tasks completely in the risk and compliance area due to the nature of the function. Even though some banks are leveraging ML components for risk assessment and decisioning, the output from such cognitive RPA solutions are aimed at improving the turnaround time for Risk processes and providing suggestive recommendations to the risk analysts. The final authority of decisioning is still resident within the risk function of the Bank.

Enterprise Level Platform based approach for RPA adoption

Banks too have started perceiving RPA adoption as transformational initiatives rather than point solutions. Initially when banks started experimenting with RPA solutions, their approach was operational in nature, siloed with very low focus on reusability aspects. With the RPA concept evolving, it is receiving a major boost with more and more banks adopting RPA at an enterprise level. Banks are now forming dedicated RPA Centers of Excellence (CoEs) to manage RPA programs at an enterprise level. The core function of the CoE is to

  • Establish standards for identifying and assessing RPA use cases
  • Develop and Execute use cases across Lines of Business (LoB’s)
  • Deploy and manage RPA installations
  • Capture and manage reusability aspects that can be leveraged across RPA use cases for different LoBs
Figure 3 – Typical RPA Adoption Framework

Figure 3 – Typical RPA Adoption Framework

Focusing on reusability

Reusability in RPA is another concept that is fast gathering steam; reusability means capturing and managing aspects from a RPA implementation and then leveraging the same in some capacity for subsequent RPA implementations, which eventually reduces development effort. Many banks have started thinking along these lines and are working towards establishing a framework that enables identification of the reusability aspects of RPA implementations. Many third-party RPA tools also provide a library space where the reusability aspects can be captured and leveraged for subsequent implementations.

Challenges in RPA adoption

No Change comes without its share of challenges, even in case of RPA adoption the Banks are facing the following key challenges

  • Regulatory uncertainty over the use of RPA solutions. No formal or defined requirements from regulators on the use of RPA technology for automation has resulted in banks taking a cautious approach to adoption.
  • Unstable business processes – many banks have manual processes that are not very well documented or stable which makes it difficult for them to adopt RPA solutions.
  • Most of the initial RPA adoption has been in silos and banks are still in the process of putting in place an enterprise-wide RPA adoption strategy and governance framework.
  • RPA technologies are fast-changing as they are still evolving

The Road ahead

As RPA technologies become more and more mature, they will open up many complex problem statements in risk and compliance for RPA adoption. The future of the RPA market looks promising as the key aspects that make RPA preferable are that it does not interfere with the existing IT investments and provides quick and efficient solutions to business users, which makes it attractive for both business and technology stakeholders.

About the Author

Ajay Katara

Ajay Katara

Ajay Katara is a Domain Consultant with the Risk Management practice of the Banking and Financial Services (BFS) business unit at Tata Consultancy Services (TCS). He currently leads the BFS Risk Practice’s portfolio on Regulations and Robotics Process Automation. He has extensive experience of more than 13 years in Consulting & Solution design space cutting across CCAR Consulting, AML, Basel II implementation and credit risk, and has worked with several financial enterprises across geographies. He has significantly contributed to the conceptualization of strategic offerings in the risk management space and has been instrumental in successfully driving various consulting engagements. He has also authored many editorials, details of which can be found in his linked in profile (https://www.linkedin.com/in/ajaykatara/)

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IMF lifts global growth forecast for 2021, still sees ‘exceptional uncertainty’

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IMF lifts global growth forecast for 2021, still sees 'exceptional uncertainty' 1

By Andrea Shalal

WASHINGTON (Reuters) – The International Monetary Fund on Tuesday raised its forecast for global economic growth in 2021 and said the coronavirus-triggered downturn in 2020 would be nearly a full percentage point less severe than expected.

It said multiple vaccine approvals and the launch of vaccinations in some countries in December had boosted hopes of an eventual end to the pandemic that has now infected nearly 100 million people and claimed the lives of over 2.1 million globally.

But it warned that the world economy continued to face “exceptional uncertainty” and new waves of COVID-19 infections and variants posed risks, and global activity would remain well below pre-COVID projections made one year ago.

Close to 90 million people are likely to fall below the extreme poverty threshold during 2020-2021, with the pandemic wiping out progress made in reducing poverty over the past two decades. Large numbers of people remained unemployed and underemployed in many countries, including the United States.

In its latest World Economic Outlook, the IMF forecast a 2020 global contraction of 3.5%, an improvement of 0.9 percentage points from the 4.4% slump predicted in October, reflecting stronger-than-expected momentum in the second half of 2020.

It predicted global growth of 5.5% in 2021, an increase of 0.3 percentage points from the October forecast, citing expectations of a vaccine-powered uptick later in the year and added policy support in the United States, Japan and a few other large economies.

It said the U.S. economy – the largest in the world – was expected to grow by 5.1% in 2021, an upward revision of 2 percentage points attributed to carryover from strong momentum in the second half of 2020 and the benefit accruing from $900 billion in additional fiscal support approved in December.

The forecast would likely rise further if the U.S. Congress passes a $1.9 trillion relief package proposed by newly inaugurated President Joe Biden, economists say.

China’s economy is expected to expand by 8.1% in 2021 and 5.6% in 2022, compared with its October forecasts of 8.2% and 5.8%, respectively, while India’s economy is seen growing 11.5% in 2021, up 2.7 percentage points from the October forecast after a stronger-than-expected recovering in 2020.

The Fund said countries should continue to support their economies until activity normalized to limit persistent damage from the deep recession of the past year.

Low-income countries would need continued support through grants, low-interest loans and debt relief, and some countries may require debt restructuring, the IMF said.

(Reporting by Andrea Shalal; Editing by Shri Navaratnam)

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Leon Black step downs as Apollo CEO after review of Epstein ties

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Leon Black step downs as Apollo CEO after review of Epstein ties 2

By Mike Spector and Chibuike Oguh

NEW YORK (Reuters) – Leon Black said on Monday he would step down as chief executive at Apollo Global Management Inc, following an independent review of his ties to the late financier and convicted sex offender Jeffrey Epstein.

While Black, whose net worth is pegged by Forbes at $8.2 billion, will remain Apollo’s chairman, his decision to step down illustrates how doing business with Epstein weighed on the reputation of one of Wall Street’s most prominent investment firms. Black co-founded Apollo 31 years ago.

Apollo said it plans to change its corporate governance structure, doing away with shares with special voting rights that currently give Black and other co-founders effective control of the firm.

The independent review, conducted by law firm Dechert LLP, found Black was not involved in any way with Epstein’s criminal activities. Black paid Epstein $158 million for advice on tax and estate planning and related services between 2012 and 2017, according to the review.

Black, 69, said that although the review confirmed he did not engage in any wrongdoing, he “deeply” regretted his involvement with Epstein.

“I hope that the results of the review, and related enhancements … will reaffirm to you that Apollo is dedicated to the highest levels of transparency and governance,” Black wrote in a note to Apollo fund investors. He will step down as CEO no later than July 31.

Apollo co-founder Marc Rowan, 58, will take over as CEO.

Rowan has often kept a low-key profile compared with Apollo’s other co-founder, Joshua Harris, 56, and spearheaded many initiatives that turned Apollo into a credit investment giant, including the permanent capital base the firm enjoys through its ties to reinsurer Athene Holding Ltd.

The revelations of Black’s ties to Epstein took a toll on Apollo, which Black turned into one of the world’s largest private equity groups. Apollo executives had warned in October that some investors had paused their commitments to the buyout firm’s funds as they awaited the review’s findings.

Apollo shares are down 1% since the New York Times reported on Oct. 12 that Black paid at least $50 million to Epstein for advice and services, when most of his clients had deserted him.

Over the same period, shares of peers Blackstone Group Inc, KKR & Co Inc and Carlyle Group Inc are up 19%, 10% and 23%, respectively.

“We think a large number of (Apollo fund investors) took a ‘pause’, and we believe the outcome (of the review) and changes today will cause most of them to return to allocating to future Apollo funds,” Credit Suisse analysts wrote in a research note.

Apollo shares jumped 4% to $47.65 in after-hours trading on Monday.

“We continue to follow these events closely and will evaluate how Apollo addresses its issues,” the California State Teachers’ Retirement System, one of the largest U.S. public pension funds and an Apollo investor, said in a statement.

Epstein was found dead at age 66 in August 2019 in a Manhattan jail, while awaiting trial on sex trafficking charges for allegedly abusing dozens of underage girls in Manhattan and Florida from 2002 to 2005. New York City’s chief medical examiner ruled that the cause of death was suicide by hanging.

FALLING OUT

Black previously said he had paid millions of dollars to Epstein, but the exact size of his payments was revealed for the first time on Monday. Beyond the $158 million in payments, Black made two loans to Epstein totaling $30.5 million in early 2017.

Dechert said in its report that Black’s social ties with Epstein, who built his fortune by endearing himself to powerful figures in high society, went back to the mid-1990s.

Epstein won Black’s trust by resolving an estate tax issue for him in 2012 potentially worth at least $500 million, the report said. He ended up advising Black on various aspects of his personal financial affairs, from his family office and airplane to his yacht and artwork.

Black believed that Epstein provided advice over the years that conferred between $1 billion and $2 billion in value to him, according to the Dechert report. Black said in his note to investors that he had paid Epstein a fee equivalent to 5% of the value he generated on an after-tax basis, and not tied to hourly rates.

Black and Epstein’s relationship deteriorated after Epstein failed to repay $20 million of the loans and Black refused to pay tens of millions of dollars in fees that Epstein demanded, according to the Dechert report.

They severed ties in October 2018, according to the report. Black knew Epstein had been convicted in Florida a decade earlier for soliciting prostitution from a minor, the Dechert report said, but there was no evidence suggesting Black had knowledge of the other alleged crimes before they were publicly reported in late 2018, culminating in Epstein’s July 2019 arrest.

On Monday, Black pledged $200 million toward “initiatives that seek to achieve gender equality and protect and empower women,” as well as helping survivors of domestic violence, sexual assault and human trafficking.

Apollo said it would pursue a “one share, one vote” corporate governance structure that would do away with shares with special voting rights. It said the move could qualify it for listing on the S&P Global indices.

Apollo also said it would seek to give its board more authority to oversee its business, eroding the power of its executive committee led by Black.

The board will be expanded to include four new independent directors, including Avid Partners founder Pamela Joyner and physician and scientist Siddhartha Mukherjee, Apollo said. Apollo co-Presidents Scott Kleinman and James Zelter will join the board and take on increased responsibility running day-to-day operations.

Apollo had about $433 billion in assets under management as of the end of September.

(Reporting by Mike Spector and Chibuike Oguh; Additional reporting by Lawrence Delevigne and Jessica DiNapoli in New York; Editing by Sonya Hepinstall, Leslie Adler and Kim Coghill)

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EU sees no cliff-edge ending for COVID fiscal stimulus

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EU sees no cliff-edge ending for COVID fiscal stimulus 3

BRUSSELS (Reuters) – European governments will not need to abruptly end fiscal support for their economies after the pandemic, top officials said on Monday, noting that any withdrawal of stimulus would be carried out gradually and only once the economy has recovered.

Euro zone public debt rose sharply during 2020 and is likely to exceed 100% of GDP this year as governments borrow to help individuals and businesses survive lockdowns.

The higher debt raises concern about how to deal with it down the road and when to start cutting it again, since the EU last year suspended its rules limiting budget deficits and debt, known as the Stability and Growth Pact (SGP).

EU finance ministers are to discuss when to reintroduce any borrowing limits in the second quarter of this year.

“I believe it important that finance ministers debate and reach a common understanding on the appropriate fiscal stance by the summer. This can then serve as guidance for the preparation of their draft budgetary plans for 2022,” the chairman of the euro zone’s group of finance ministers, Paschal Donohoe, said on Monday.

“To avoid any misunderstanding, let me stress that this is not about an imminent withdrawal of fiscal stimulus,” he told the economic committee of the European Parliament.

“We all agree that our immediate priority is to shield our citizens, in particular younger cohorts and those most exposed to the crisis. There must be no cliff-edges,” he said.

Joao Leao, the finance minister of Portugal which holds the rotating presidency of the EU and therefore sets the agenda for EU finance ministers’ work until June, was equally cautious.

“We should not withdraw stimulus too early. We need to make sure the suspension clause for the SGP remains in force at least until we return to pre-crisis economic figures,” he told the committee. “We need to make sure jobs are maintained as well as the production capacity of companies.”

He said first cash from the EU’s 750 billion euro post-COVID economic recovery programme should reach the economy in the first half of the year.

“Real funding should be getting to the economy before the summer or in early part of the summer,” he said.

(Reporting by Jan Strupczewski; Editing by Giles Elgood)

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