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IBM to acquire Promontory; create AI-driven compliance subsidiary

29 September 2016  |  8964 views  |  0 Big data

IBM is to acquire risk management and regulatory compliance consulting firm Promontory Capital and create a new subsidiary, Watson Financial Services, in which it will use artificial intelligence technology to keep pace with the rapidly changing financial reporting landscape.

IBM says it will combine the expertise of Promontory's 600 staffers with Watson's cognitive computing abilities to directly address the massive operational effort and manual cost of escalating regulation and risk management requirements.

Staffed by former alumni of Wall Street, Treasury and regulatory bodies, Promontory has earned the nickname 'the shadow regulator' for the depth of its compliance knowledge. The combination with IBM is the biggest example yet of the coming age of Regtech, in which technology is applied to the unravelling of regulatory red tape.

Big Blue says that more than 20,000 new regulatory requirements were created last year alone, and the complete catalogue of regulations is projected to exceed 300 million pages by 2020, rapidly outstripping the capacity of humans to keep up.

Says IBM: "This is a workload ideally suited for Watson’s cognitive capabilities intended to allow financial institutions to absorb the regulatory changes, understand their obligations, and close gaps in systems and practices to address compliance requirements more quickly and efficiently."

McKinsey estimates that the cost of managing the regulatory environment represents more than 10 percent of all operational spending of major banks, for a total of $270 billion per year.

Bridget van Kralingen, senior vice president, IBM Industry Platforms, says that Promontory’s professionals will train Watson to help compliance professionals make sense of the mass of rapidly changing data around regulations and compliance.

“Promontory’s experts are unsurpassed in this field," she says. "They will teach Watson and Watson, in turn, will extend and enhance their expertise.”

Terms of the acquisition, which is expected to close in late 2016, have not been disclosed.

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