Episode 85: The Only Constant Is Change

Utilising Digital Intelligence in Financial Services

In this episode we are joined by James Fox, Managing Director, EMEA and Regional Customer Officer of Financial services at BAE Systems Digital Intelligence, where he and Nick White, Head of D&B Accelerate discuss how digital intelligence can detect and prevent financial crime, the challenges of data regulations, and the ability to stay current with market-changes.  

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The Power of Data Podcast

Episode 85: The Only Constant Is Change

Guest: James Fox, Managing Director, EMEA and Regional Customer Officer, Financial Services at BAE Systems Digital Intelligence
Interviewer: Nick White, Head of D&B Accelerate

Nick 00:00
Hello and welcome to the power of data Podcast. I'm Nick White, head of D&B accelerate, and today I'm delighted to be joined by James Fox, managing director, EMEA and regional Customer Officer, financial services at BAE Systems Digital Intelligence. Welcome, James. How are you doing today?

James 00:15
Well good. Great to be here. Thanks for the invite Nick.

Nick 00:18
Thank you and welcome again. Before we dive in, I wondered if you mind sharing for our listeners a little bit about your background and career history? And then we'll talk a bit about BAE Digital Intelligence.

James 00:28
Sure. People can't see in our podcasts, there's lots of gray hair here, with about 25 years industry experience, graduated with a Management Science degree in the UK. Worked for a number of products and software consultancies, actually a few different industries, most notably in the shipping and maritime industry and real time software, but found my way to an organization called Detica in about 2005. Detica, were then acquired by BAE Systems. So, I joined as a management consultant doing client-side work. And then in about 2010-2011, I moved into our financial services team, a full circle for me, because I've actually done my work experience in a retail bank. I used to work in the banks during university, six months a year. For last 12 years, I have been in the financial services team project managing delivery leadership, selling within that region, and for the last two years now I've been leading our Europe, Middle East and Africa region.

Nick 01:26
Great, and James what's the size and scale of the operation in EMEA now for financial services at BAE?

James 01:31
Yeah, so we're probably about 300-350 people and revenue, well orders will be something like 70-75 Million Sterling annually. We had a great year last year, best ever for us actually, which was a real try and from the context of everything going on, but yeah, it's pretty buoyant at the moment.

Nick 01:48
Congratulations and well done on the success. I think a lot of our listeners will know about BAE systems, but lesser known will be the digital intelligence business. I wondered if for their benefit, could you talk a little bit about the mission of digital intelligence in the context of financial services, for those who maybe don't know the business?

James 02:06
Well BAE systems famous for making submarines, and aircraft carriers, For sure. Right. That's the first thing I'll probably think about, but actually quite tight alignment between the values and the approach from both businesses. And what I mean by that is BAE systems group is all about protecting society and defending, and that's the same. So, that's why they purchased a financial services business originally was to help secure UK PLC and actually that whole of the globe around financial crime. So, from our perspective, within digital intelligence, which is a subset of BAE Systems Group, you're talking to me the Financial Services team, fighting financial crime is our complete core mission using our NetReveal platform. We've got teams who are industry products, technical experts, but completely embedded in anti-financial crime culture. So, we work with eight of the top 10 banks in EMEA, and most of the largest banks globally.

Nick 02:59
Great and that focus on financial crime, that's all aspects of financial crime. Obviously, you've got anti money laundering, you've got things like modern slavery, it touches all spectrums of what we call financial crime.

James 03:10
Yeah, but economic crime is obviously a massive lump of things, and we could talk a bit about that later. But if we can narrow it down into financial crime, which traditionally is the kind of compliance and anti-money laundering space, you're quite right. Our focus is kind of a broad gamut. We're one of the vendors who can do everything, shall we say, an enterprise player, we can absolutely provide solutions around anti-money laundering, anti-bribery, corruption, counter terrorist financing, payment, fraud, customer screening, transaction fill trigger, all those things, your customer due diligence, of course, which is super relevant for our partnership about how we might use data better to risk score on board people, the whole gamut you can get from us.

Nick 03:48
James, and obviously the world today is very, very poignant. The recent conflict that we see in Ukraine, and Russia sanctions and how that's impacting the fight against this situation, we see unfolding. I guess your clients are leveraging your capability more than ever.

James 04:04
Yeah, I mean, so we have supplied the platform that we list, the world check, acuity, or whoever it is, or, they'll have a list provider, those lists are imported and then we will scan the list against their transactions, their names and all that customer account and onboarding to protect them, and ensure that they are, doing business with the right people and not expose themselves unnecessarily. So yeah, it's super topical moment.

Nick 04:26
Great. And it's a nice segue into our relationship, and where I see our partnership evolving. We've been working together for a little while now, but the power of the D&B's content of beneficial ownership specifically in the context of financial crime, how can you see our partnership adding value and the benefits it brings to your clients today?

James 04:45
Where do I start? I guess there's probably quite a lot to cover in that one. So, look, frankly, it's a really fragmented market, in terms of what's out there. We've got loads of providers of data, loads of providers of software, loads of providers of infrastructure, business processes change; There are companies who do that, there are system integrators that are product providers and local providers, and international providers. All of which makes it super hard these days to have one vendor to have all the answers to anything and provide the best solution. So, ultimately, this is where partnerships come in. We like to call it part of ecosystem, I don't know what you guys are calling it at the moment? But you know, how interoperable you are, and how you can plug in whether it's plugging in data, or integrating at a technical level, or having your business processes has been alive, is now really, really, really important. And we see more and more of that to the market and need to be able to seamlessly integrate. So, we're working hard to build out our technology and delivery partners. So really delighted to be working with you guys, as a technology partner, and I think it's going to be very exciting how we can align Dun and Bradstreet's excellence and expertise, data, corporate records, UBO, you mentioned, you know, with our own CDD KYC solutions, so we can really enhance existing customers. So, a highest level I see that, but if I went into the actual benefits, I can see two or three specific things that I think will be really, really beneficial. Frankly, there is like so much data out there. It's crazy. IDC is saying that by 2025, there are 175 million zettabytes, apparently the 175 trillion gigabytes, I had to look that up. But basically 30% of the world's data is going to need real time processing by 2025, 30%. So, these numbers are massive, just really hard to comprehend or to put into context. But ultimately, with that kind of data explosion, you got to think how you work, you got to rethink it. And so, it's where automation comes in how to do things faster. This is where by us doing the heavy lifting, we can let the clients focus on the value added tasks, should you say the detection, the investigation, the piece they really need to do. So, I think that was benefit number one.

Nick 06:54
I completely hear your comment on the proliferation of data and it's about relevance now is that it's not about having access to content. I think when I started in this industry 20 odd years ago, getting access to content was challenge number one that we, nobody has that challenge anymore, it's about relevance and being able to interpret the content you have access to, and I see D&B's commercial content, helping to create a little bit of relevance, a bit more relevance feet for our mutual customers and your technology, helping to inform the decisions that underpin the data has been provided. I read an article about there's been more data created in the last two years than had existed.

James 07:34

Nick 07:34
for the history before. It's unbelievable.

James 07:37
by the way, I gotta say, Yeah, I know the listeners can't see this video. But if you've done 20 years, you've had a significantly easier 20 years than me, I don't see any greys. You're doing pretty well.

Nick 07:48
I do and, there's a lot of dyeing involved.

James 07:51
So, I agree. I think the second point I'll make on top of that, is that I think there's a benefit of partnership from a functional perspective as well. You know, the addition of D&B as a data source to that reveal makes it a richer solution, it's really going to enhance this ability of customers to verify that UBO, you know, well how will we really do business with them? This is so important. Transparency, clarity in the space is now a major reputational issue. If we go really topical again, you only going to look at the Credit Suisse leak, look at the potentially embarrassing people that they have on a client list, all of whom they could have made a risk-based decision around if they'd had a better understanding of the UBO, and so, I think that's where us working together can really benefit their customers. I think the final point I'll make through the partnership is about customer experience. All of us now probably deal with many financial services firms. Yeah, it used to be in the old days, you know, I'm a customer of Lloyd for 35 years, or I'm a customer at Barclays in the UK, whatever it is, and you'd stayed there. Whereas now people tend to pick and choose, and they open a bank account for this, or they take a loan here, or they buy now pay later with somebody else. And all those things they want to do quickly. They want to do it fast, it's quite frictionless. So, when those other firms are onboarding someone, they don't want to be like, I'll fill in a manual form, take 30 days or whatever. I think the integration of tightly working together or an interoperable partnership where you can seamlessly get data and get data out, integrate nicely in a frictionless way. It'll really help increase the confidence around the restoring it smooth to do acquisition of client’s process for our customers, speeds up onboardings, and all of this, we can work together today with a platform, all of which reduces total cost of ownership. So, it's a pretty positive view forward I see.

Nick 09:34
Thanks, James. I think customer experience not only for the end client that said Financial Services is trying to onboard. I also think about it from a lens of, of the buying experience of the said bank who's maybe out in the market looking for a new solution, has data, consultancy, technology, middleware, lots and lots of different people that they need to kind of figure out how they fit in this ecosystem. And if you've got two or three of the market leaders in each of their area that are aligned, used to working together and have a mutual value statement, it helps them to make a decision to move in that direction, so yeah, I'm delighted and look forward to all of the success we'll have together. I'm going to change tack a little bit here and move into the market, James, and I guess as we touched on a little bit earlier, we're in some very difficult situations here in Europe, we're just out of a pandemic, when we look at the things that are keeping our customers awake at night, the biggest challenges they're facing today. What do you see those being? And I guess the following question from there is, what does digital intelligence do to help solve those problems?

James 10:43
Very good question Nick. Yeah, I mean, there's no doubt that the pandemic has had a big impact on these financial institutions, if I can say that, you know, about the way they think about how they detect process and prevent financial crime, big thing. But when I think of the big picture, I think there's kind of three things, again, I'd call out that are challenges. Firstly, the sophistication of threat actors. So how smart are the people who are trying to defraud or commit financial crime, right, that's forced new behaviors. The second thing I'll talk about would be regulatory change, it never stops, the only constant is there's more change, there's more regulation coming down and that has already accelerated, so we got to think about that. And then the third one is probably about customer preferences. We talked a bit earlier about the frictionless experience, the onboarding of clients, I think customer expectations in a remote working or a different way, is changing the way they interact and behave with these financial institutions. So, all three of those are actually having an impact on our customers. So, I'd like to first one around the sophistication of threat actors, how do you stay on top of that, how do you stay current with everything that is going on? Because we've seen a real increase in the level of sophistication and agility, and amongst those threat actors, the last few years, they're pretty much often able to bypass, you know, existing controls, whether it's like a rules based approach or a simplistic type thing there. So, actually, what you're gonna put in place could be much more sophisticated, to ensure that they are unable to profit from their own criminal businesses. So, your compliance team has got to move fast, they've got to respond quickly, to the challenge the same, and you're gonna have a solution that enables you to iterate and be agile. You can't kind of stick something that was and just leave it anymore, because actually, the data changes, the market changes, and you've got to be able to shoot it up and shoot it down and respond so that you bring it out the right alerts, and investigating the right things, so that's, that's pretty important. I said before, the only constant is change, and we're able to change, so increasingly small world, cross border, global nature of everything, there's multiple regulators looking at different things prioritizing different aspects of financial crime, and enforcement. There's a few different ways you can look at that. You know, in Europe, you've got the changes by European Commission, the EBA, in 2021, or looking to take place by 23. This is going to strengthen AML policy, and control. But it's the new regulation around crypto, and vasps going to kick in as well. And in the USA, they've had the 2020 Anti-Money Laundering Act to support existing requirements. So, there's change all over the place and if you're multinational institution who's operating in multiple territories, how do you have a platform, something in place that is ready and appropriate for North America and for EMEA, and perhaps, for South Africa, and also Asia? So, there's a big challenge there about actually how do you manage to sped the change for your own financial crime tooling process? And people, big thing. I don't know what you guys see about that?

Nick 13:42
It's one of the biggest challenges, right? Is you've got this, take one of the big super majors, they all have their own kind of set of governance and policy, and then you've got the regional, regional nuances that need to be applied, and they change so much. That's probably the toughest thing to keep up to speed with, is, is new regulation, new sanctions, new pieces of guidance.

James 14:03
That is tricky. How do you apply local configuration or local tailoring, if I can I say it, in the context of a global framework, in a global thing, and all the mega banks have that, all the universal banks really go across will have that challenge. So, it gets interesting, actually, when you get into, well, we're like an enterprise player, so, we've got a very configurable solution. But I think for some of the Fintechs, that that level of configuration and multi-currency environment, it's quite hard, actually.

Nick 14:27
Very, very difficult. And from a technology lens, this migration from on prem, massive security challenges around the data around their organization to SaaS deployments. And then making it more agile. You must have seen that.

James 14:38
Yeah, I couldn't agree more. I mean, the whole cloud thing is, cloud has been with the coming thing for four years now. And it is interesting because even if clients aren't actually doing anything about it, they're all got a cloud first strategy, which drives a conversation and you know, we're seeing quite a lot of clients are obviously interested in you know, buying a hosted solution, but increasing volume of clients also have their own cloud strategy, their own private cloud, and looking for vendors to be able to deploy into that, and run managed services on their private cloud. So, all kinds of different configurations are possible combinations, are out there. But yeah, very relevant conversations.

Nick 15:12
Yeah, I think it brings us nicely onto the next topic, really, which is digital transformation in the context of financial services. You know, if you open a conversation with a bank, mention digital transformation, you're going to get 20 minutes of these are the reasons why we are and aren't doing this. What are the big, outside of the banks themselves, what are the big emerging trends that you're seeing in technology that are helping mitigate terrorist financing, money laundering? And I guess, what are you guys thinking about longer term?

James 15:41
You know, economic crime is enormous. It's hundreds of billions of pounds a year. And we're looking further down on to financial crime where we're focused, right, because actually, as a business, we've got quite a bit of heritage, outside of pure financial crime space, you know, we've helped the government fight tax fraud in the UK for many years, we've run multiple instances of insurance claims, fraud solutions, to use social network analytics to prevent, you know, insurance claims fraud, which is a big, big problem. And we've done that and consortiums, we've done that with individual firms, we've done it globally. So, we've got lots of heritage in this book. In terms of where we'll go into the business, our mission, or our ambition, would be to remove first line triage, it encompasses a lot, because to be able to remove first line triage for the investigator, what that requires is automation and technology and processes to come together to take away some of this heavy lifting. So, we are focusing our investment on technologies, people and process that all kind of drive towards that goal. So, we're making lots of product and the types of machine learning, and robotics, and AI that helps with that. We're educating and upskilling our people to be able to work with the banks, the institutions to streamline their processes, and we're also getting infrastructure. So, all of those thing’s kind of come together to go towards that, that goal.

Nick 17:02
I'm just thinking for those listeners of the podcast who maybe don't know what first line triage is, if you want to expand on that a little bit for them, James.

James 17:12
So, first line triage - so, imagine an AML compliance, or anti-money laundering system, what happens is that the bank or the institution wants some detections, they've got some rules, or some AI that says, these are the things we're looking for and they push the data through that, and if it finds a match, or whatever, it pushes then what we call an alert, through to an investigator, and they all get pushed through 1000s of these things every day. And first line triage is kind of the process where you got to go, Yeah, that's interesting. That's not interesting. That's interesting. That's not interesting. It can be very repetitive, because whether you've got a misconfiguration of your alerts, or you've had a new batch of data that has a particular anomaly in it, it can push all sorts of things through. Which is why false positives are such a chronic issue in the industry right, were you get up to 99% false positives. So, you've got hundreds of people sat there, frankly, looking at stuff, it's the old needle in the haystack problem. So, what we are trying to do is to help people see the wheat from the chaff to that man, that first line, which is quite a low skill processes, often outsource, you know, it could be offshore hundreds of people sitting not interested, you could actually apply some AI, some technical solutions to help you in effect filter through to the stuff that's worth looking at. So, the technology around how do you help really push down to the alerts that are worth investigating is where I'm going. And when I say first line, there tends to be a triage process. There's hundreds of people at the first line, then there's fewer a second line, and then you get a really skilled guys and girls, at third line, who are the expert investigators, because you don't want them spending time on the low hanging fruit, the simple stuff, which we believe you can fix by a combination of technology and process.

Nick 18:50
That's really, really helpful James, and it's interesting. False positives for me is a term been in this industry for a long time automatically makes me think about AML screening but false positives now is normally related to COVID tests and negative and positive, that is very interesting how it has now grown and grown a different meaning for me.

James 19:09
Yeah, exactly.

Nick 19:10
When you think about that triage effort, the typical Pareto rule apply that 80% of the time is spent there in that first line where actually it should be spent further up.

James 19:20
Honestly, I was struggled to give you an exact number on it, but what I can say is I agree with the principle, the principle is how do you get more of this high value resources time spent on high value activities. So, you are spending, and you know everyone knows that one of the biggest costs of business is the staff cost. And whether they're onshore offshore, whatever, it's still going to be a big ongoing cost for the institution in terms of that total cost of ownership and hitting the bottom line. So, if you can do something that automates or removes the need for that and use a technical solution to help slow it down, we believe that's a good step forward. Odds are, I think there's many people who are looking at different ways of doing this. I think we have an advantage by having kind of an end-to-end solution through the whole lifestyle through the workflow, advisor partnerships with yourselves where we can influence it in multiple ways, all of which are, how do you deliver the best possible alert.

Nick 20:11
Great, thank you for that really helpful. My final question for you this evening is, is really geared about the future. And outside of the recent rebrands and change of name, what else can we expect to see on the horizon from BAE Digital Intelligence over the next 18 months?

James 20:27
Well, it's two parts, I'll say a couple of things about us, our business and a couple of things of market kind of things that I think are interested and coming up. First of all, with us internally, we're looking to launch more products, we put more money into things we've talked about. So, we've got new versions of our core platform coming out later this year, it will be exciting in terms of looking at improvements and time to value shortening deployment times and improve technology, you know, that's a key piece for us. We're also launching, the second half of the year, cloud native next generation kind of technology aimed at lower tier. So traditionally, we've played with tier one tier two bags, big enterprise play. You know, there's a mushrooming spread of financial institutions now offering services who are not traditional, right, so they're not a bank or insurer. It could be a FinTech, it could be RegTech, I mean, the classic example I always use is, you know the big Apple or Google or AWS right now, they want to offer end to end seamless experience for their customer, and they want to own that whole value chain. In that value chain, part of that's probably payments, right? Well, if you're in payments, that is a regulated industry. There's a regulated industry, you need compliant solution. So, what's super interesting for us is that our whole addressable market is changing, because previously, you just sell into banks. Well now you're selling to anybody who's offering any kind of financial product that is regulated. So, you can move into a bunch of adjacent markets, potentially. It could be the gambling sector, it could be really tight things like Wealth Management, or private banking, or auction house, things like that. But actually, it could be anybody who has offered payments, or funded this, and lots of the big travel companies, for example, do that. That's an interesting space. And so, we are launching some next gen cloud product, which will be different price points, and tier three, tier four. And I think that'll be really interesting to see how we go on with that.

Nick 22:13
Thank you, James, and yourself personally, what is the rest of the year hold for you? Are you going to manage to get away from the UK at any point?

James 22:20
Thank you. That's a good question. When the COVID all kicked off, I was actually in Singapore, and I haven't been on a business trip since, but last week, got to Paris. What about yourself? Have you got anything planned?

Nick 22:31
Nothing planned at the moment but very much looking forward to be able to travel again, and actually meet people in person. I had my first client meeting, so actually seeing a client in person last Friday, which was so bizarre, but really looking forward to meeting people in person. Thank you so much for your time, James. I'm delighted that we have a partnership with your organization. I'm really glad to have met you and thank you to our listeners for listening to the power of data podcast.

James 22:54
Great to talk to you today Nick, thanks very much for time, enjoyed it. Hopefully see you soon