Brian Stone 0:03
Hello, and welcome to the buzz of bank automation news podcast. My name is Brian stone, then the associate editor at Bank automation news. Joining me today is Joe Robinson, co founder and CEO at Hummingbird. Joe discusses the compliance challenges faced by banks, how ChatGPT can be used to improve financial literacy, and what FIs can do to respond to the dynamic regulatory environment.Joe Robinson 0:28
So the way that financial institutions set up the compliance program is to think about their unique risks, right, it all starts with understanding the risks that the products and services offered by the institution comprise it’s it’s something where each financial institution by regulation is supposed to be looking at the target customer profiles that they work with the products and services that they offer, the geographies that they operate in, and a variety of other factors, and trying to understand their unique risks of money laundering of financial crime of other issues that could be problematic for their business and for society as a whole. And that is meant to flow into the institutions program, and become the processes and procedures and investigations and reporting that they do on a day to day basis as their compliance and risk operations. So yeah, it all starts with the risk perspective and the risk assessment.

Brian Stone 1:37
What are some common challenges that pop up when a bank is trying to install this type of compliance program,

Joe Robinson 1:45
some of the challenges that come up for institutions are things like operationalizing it that, you know, the the mandate of a compliance group and a risk group is to look at all of the activity of their customers, suss out the things that seem unusual, or could indicate bad behavior, verify identities that sign up and on an ongoing basis, verify that the customer is who they say they are. And they’re doing the things that you expect. And then investigate those things. And, you know, honestly, it becomes quite an operational challenge for a lot of institutions, they have to do this at scale, if the business is doing well, they’re gonna have more customers, more transactions more signups. Those are all good things for the business, but they can be challenges for compliance and risk when the program isn’t super optimized. And I think a uniquely challenging aspect in this domain is just the fact that it’s subject to audit, right, you have to do this at scale, you don’t want to miss anything. And you’re going to have a regulator come in periodically, sometimes monthly, quarterly yearly. And they’re going to ask to look back over a sample of the investigations that you conducted and why you made the decisions you did. So it’s kind of like somebody going through your email inbox for the last year and making sure you responded to every email the right way, can be a little bit of a needle in the haystack exercise and one that, you know, a lot of compliance professionals have have stress and anxiety about are they doing the right things every single time. One thing I tell new employees at hummingbird is you know, the movies would have you believe that, you know, an investigation is a long running exercise and goes for days or weeks. And, you know, there’s a team of people kind of following up on the investigation. The reality is like compliance professionals have to look at, you know, 510 20 of these investigations per day, right? So they’re trying to do this work as efficiently as possible. They’re trying to make sure that they’re not missing any crime. And they’re trying to provide great information to law enforcement, all of which are challenging, so they really need specialized tools and services to help them with that work.

Brian Stone 4:12
So one other aspect I wanted to ask you about was Kyp technology for people who aren’t immediately you know, aware of what that is, could you give a rundown and maybe tell a little bit about how banks can benefit from this technology? Absolutely.

Joe Robinson 4:28
Ky B and its sibling KYC. They’re both acronyms, referring to know your customer that’s KYC and know your business KY B. It’s kind of the difference between an institution that provides, you know, consumer credit cards to people, or, for example, a commercial bank that’s providing accounts to businesses. Ky B is I would say like Kyp is a prac This area that is a bit more challenging because of the presence of a legal structure in the middle of of the bank and the customers, right. Businesses, of course, are comprised of people, but they are separate legal entities and they can often be a little bit more challenging to find information about. So the KYC, I’m sorry, the Kyp practice area is all about knowing who the businesses that you’re working with are, knowing who the beneficial owners are, meaning who are the people behind the business, and what are they up to understanding what business and what markets that business is operating in. And then making sure that you’re providing secure account access and products and services to that business in a way that you know, are safe for the system and don’t cause or facilitate financial crimes to be perpetrated against people. So

Brian Stone 6:00
how can that provide better anti fraud solutions in areas like commercial finance?

Joe Robinson 6:07
Yeah, I think as we’ve seen from expos days, like the Panama Papers, and the paradise papers, things like that, there are quite a few shell companies out there in the world, a shell company refers to a legal entity, a business that is meant to hide or obscure the funds that it contains, right. So these businesses are used as tax havens are used to avoid tax laws, they can be used to hide wealth, offshore, they could be used for a variety of purposes, there’s quite a few of them out there in the world. And, you know, it’s it’s a Kyp, as a practice area dedicated to understanding the business, and what its purpose is and who the people are behind it. Technology wise, Kyp seeks to help the financial institutions understand those customers and who they are. It’s all about kind of collecting information about the owners, collecting information about the intended purpose of the institution, and ultimately trying to prevent fraud and tax evasion and other types of financial crime from that business.

Brian Stone 7:20
So one area that I wanted to talk about is chat GPT, and how it can help with financial literacy. So just a quick rundown for people who are unaware, chat GPT is an AI chat bot, that has become notable for being able to spit out very, almost creepily detailed things that are being requested of it. You know, sometimes it’s a little weird how good it is. I just wanted to ask, you know, how can banks improve their financial literacy using tools like chat? GPT?

Joe Robinson 8:02
Yeah, chat. GPT seems to be a forerunner and a new class of artificial intelligence that’s basically composing written dialogues. Right? And, as you say, Brian, it’s it’s eerily good, right? It’s it actually can create writing from a very simple prompt. That is a lot like a human expert. I think the applications in financial literacy are very interesting, right? It let’s say that you are starting out on your path and personal investing, and you want to understand what an index fund is. You know, normally, you would go to a search engine, Google or whatever you choose, enter in what is a an index fund, and those search engines will provide you with a list of links, you can go into the links, you can kind of explore it. But it’s really left to you as a consumer of that information to form your own understanding from the links. And maybe the links are good, maybe they’re not. You have to kind of hunt through sites that have been designed for SEO, and they might have a lot of ads on them. So you know, it’s a little bit hit or miss whether you get the information you need. I take that in contrast with something like chat GPT, you asked the same question, what is an index fund? And you have a written response that, you know, sounds like it’s coming from a trusted adviser and expert, a friend. It’s just a very clear, obvious answer about what an index fund is. And one of the cool things is that you can actually follow up with questions as well. So if you had follow on questions about different types of index funds, different markets that their index seen, you know why they’re sometimes a recommended strategy over mutual funds. Are other types of investments, you know, chat GPT could sort of follow up with dialog, and you know, quote unquote, chat with you through your questions about that. So I view it as a powerful resource for financial literacy really, for any kind of knowledge based query and right. There’s a lot of different applications in the world, but financial literacy is certainly one of them.

Brian Stone 10:24
When it comes to this type of AI based technology like Chet GPT, what other functions could it possibly serve for banks? And the reason I asked that is because it seems chat GPT specifically, I’m sure there’s other types of chat bot software that do this, but chat GPT has been known to like, we’re, it’s almost at a point where it can spit out like programming code, if it’s required to now it doesn’t 100% work, but what other functions could a bank use this type of software to help with?

Joe Robinson 11:02
Right? I think a bank or financial institution using chat GPT should think about any written applications that they have, right? So could be chatting a chat bot on your website, providing customer support, could be written disclosures, things like that, you know, very, very important disclaimer here, chat. GPT is a very early stage technology in artificial intelligence. So I don’t know that the company behind it open AI actually intends it to be used in the commercial setting. But you know, it’s something that is quite a breakthrough technology. The applications are limitless. And it’s a good one and a fun one to explore and be familiar with. So pretty much anywhere it can write code, or written responses and write code as you say.

Brian Stone 12:01
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