Rumors have circulated for years regarding the disruptive potential of high-powered regulatory technologies and artificial intelligence on the financial sector. Anyone involved in the banking sphere over the past decade has continuously heard that in the coming years, contemporary means of banking and financial security are likely to become outdated — and quickly. Today, the growth of financial technology has merged into other realms such as trade, insurance, and risk management, with more industries likely to be impacted as well. The changes that have already arisen throughout the global compliance landscape over the past several years have been undeniable. Financial institutions (FI’s) of all sizes have bought into the increased ease and reliability that accompany automation of once-manual compliance processes, and many have witnessed the power, and the positive effects that have emerged as a result, of the incorporation of such measures. Transaction monitoring, data management, and customer due diligence (CDD) are just three areas of compliance that have already been transcended as the technology available has continued to advance. Even so, it seems that we have only scratched the surface on what the financial sector is capable of developing and achieving in terms of optimizing operational efficiency within FI’s, and generating a network of comprehensive financial security at the international level.
The article “How is AI disrupting financial industry?” cited in BSA News Now on September 21st, 2017, discusses the impact that financial technology (fintech) has already had on different regions of the world, and what the future might hold for various industries in this regard. The adoption of fintech by the global investment banking presence Goldman Sachs is discussed early on in the text, and its impact is a prime portrayal of the transition that many financial service providers have already begun to make. The article discusses how in the early-2000’s, Goldman Sachs employed several hundred traders who would buy and sell stocks on behalf of the bank’s clients. Fast forward to 2017, and that once-thriving workforce has been cut down almost completely, as automated trading programs eliminated hundreds of manual jobs, leaving Goldman Sachs with only two remaining equity traders altogether. This case demonstrates a trend that is now seen in compliance departments across the country, as manual jobs (especially those with anti-money laundering and know-your-customer functions) that were once considered essential for the success of a financial institution continue to be eliminated at a far greater rate than ever before. The article notes that “Asset managers, analysts, traders, compliance administrators, back-office data collection and analysts are most likely to lose their jobs, because their jobs are easier to be replaced by automation and AI” (Xinhua, 2017). Financial institutions across the globe have found that in many cases, artificial intelligence and automated technologies not only increase productivity by performing the functions of humans with far greater accuracy, but they can do so in far less time, while also costing an organization far less money in the long run. This makes the choice of whether to turn to relatively inexpensive, reliable fintech options as opposed to expensive and highly-variable human options all the more simple for FI’s.
The article also discusses how Wall Street has embraced the financial technology trend. Richard Lumb, a chief executive from Accenture’s Financial Services operating group believes that the outlook for fintech is very strong, stating that the “Demand for fintech by banks is growing because of regulatory and capital pressures, competition from large technology players like Google and Amazon and the abundance of new security threats” (Xinhua, 2017). Lumb also believes that the rise of new technological frontiers such as cryptocurrency and cybersecurity, among others, are just beginning to open up, and expects blockchain technology to have the greatest overall impact on the financial services sector. “Block chain will change the way people store information, which is real, spreading fast and cross-border”, the writer states, “and its ‘de-centric’ feature will allow everyone to know what other people are doing. The application of block chain in finance will once again bring about a revolutionary impact on the industry, just like AI does” overall (Xinhua, 2017).
Thus far, China has led the charge in terms of the development and adoption of fintech services, however, several other developed countries across the world, including the United States, are racing to invest and stay above the curve in regards to this mostly-untapped realm. With consumers placing greater reliance on technology, in addition to social media platforms gaining popularity, there is clearly room for expansion into other spheres of life that will benefit both financial institutions and the customers that they serve. Regardless of varying opinions on the importance of (and/or over-reliance on) technology in today’s society, the future looks bright for all parties involved in the financial services cycle in both the United States and abroad.
OFAC Broadens North Korean Sanctions
On September 26th, the U.S. Treasury Department announced new sanctions that will undoubtedly shake up the international financial system in the weeks to come. The Office of Foreign Assets Control (OFAC) “sanctioned eight North Korean banks and 26 individuals in a number of other countries who were acting as their agents—in several other countries, including Russia and China” (Byrne, 2017). The move comes after already high tensions between the leaders of the United States and North Korea, respectively, reached a boiling point earlier this month with North Korea’s eccentric supreme leader Kim Jong-un threatening the “final doom” of the U.S. North Korea’s continued violations of the United Nations Security Council’s resolutions, as well as the country’s relentless pursuit of high-grade weapons also factored into to the decision to increase the overall isolation of North Korea.
In a statement on the newly-imposed sanctions, OFAC officials stated that they are “ targeting North Korean banks and financial facilitators acting as representatives for North Korean banks across the globe” in an effort to “achieve our broader objectives of a peaceful and denuclearized Korean peninsula” (Byrne, 2017). The banks that are to be sanctioned are as follows: Agricultural Development Bank; Cheil Credit Bank; Hana Banking Corporation Ltd; International Industrial Development Bank; Jinmyong Joint Bank; Jinsong Joint Bank; Koryo Commercial Bank Ltd; and Ryugyong Commercial Bank. The economic and diplomatic sanctions that are being incorporated have the full support of the United States military, according to reports.
Morgan Stanley Pays Fine for Investment Mishaps
Following the company’s failure to provide sufficient guidance to staff members in regards to their abilities to scope out proper unit investment trust (UIT) trading, Morgan Stanley, one of the world’s leading financial services firms, was ordered to pay $13 million in fines and restitution to clients affected by these improprieties. Designed to provide appreciation of capital and income, UIT’s are defined as a type of investment fund that offers a fixed portfolio, generally of stocks and bonds, as redeemable units to investors for a specific period of time. The Financial Industry Regulatory Authority (FIRA) discovered that between 2012 and 2015 Morgan Stanley officials failed to advise “thousands of customers to sell their UITs before their maturity date and roll their investment into a new trust, according to the regulator”, ultimately costing their clients large sums of money (Streuly, 2017).
FINRA has ordered the bank to pay back nearly $10 million in restitution to over 3,000 customers in the coming months, and also levied a fine of $3.25 million against the bank for its transgressions. This is the second time that the conglomerate has made headlines this week, as on September 27th, company CEO James Gorman gave his take on the rise of Bitcoin and some of its more compelling features. Gorman countered the recently publicized opinion of JPMorgan Chase CEO Jamie Dimon who deemed cryptocurrency as a “fraud” that would not last. Gorman believes that it is far more than simply a fad however, and although he has not personally invested in the technology, he is captivated by the privacy protections that it can provides to consumers.
Uber Sued By Shareholder
Booming American startup Uber and the company’s ex-CEO are now facing allegations of illicit business activity related to investment fraud, the latest in a line of recent scandals challenging the future growth of the company. Texas-based Irving Fireman’s Relief & Retirement Fund brought the lawsuit forward, claiming “Uber and former CEO Travis Kalanick knowingly misled investors while raising capital by failing to reveal the company had potentially broken laws, revelations that allegedly cost investors billions of dollars in losses on investments” (Bensinger, 2017). The fund reportedly invested $2 million into the company in early-2016, and is seeking damages and class-action status for a plethora of Uber investors. The fund also alleges that Uber has “lost at least $18 billion in market capitalization” over the course of the past year (Bensinger, 2017).
This lawsuit is the latest in a growing pile of legal issues facing the startup, but is the preliminary issue facing new CEO Dara Khosrowshahi since assuming the position following Kalanick’s resignation in June. A similar lawsuit was filed in August by one of Uber’s largest investors, Benchmark Capital, pointing out various issues such as Uber’s “use of software to evade regulators, known as Greyball, a program called Hell used to interfere with rival Lyft Inc.’s operations, a lawsuit from Google parent Alphabet Inc. over allegedly stolen trade secrets, and charges of widespread workplace discrimination” (Bensinger, 2017). Global RADAR will provide updates on the lawsuits facing Uber as they become available.
Bensinger, Greg. “Uber Shareholder Sues Company, Ex-CEO Over Alleged Fraud.” Fox Business. Fox Business, 26 Sept. 2017. Web.
Byrne, Leo. “OFAC Sanctions North Korean Banks and Bank Employees.” NK News – North Korea News. 26 Sept. 2017. Web.
“Spotlight: How Is AI Disrupting Financial Industry.” Xinhua. 18 Sept. 2017. Web.
Streuly, Dick. “Morgan Stanley to Pay $13 Million Over UIT Supervision.” Fox Business. Fox Business, 25 Sept. 2017. Web.