Welcome to Finextra's live coverage of the Swift Latin American Regional Conference 2019, in Panama City. This event will focus on important issues affecting the financial industry in the region, and how the financial community can accelerate digital transformation.
13.48: Finally, Blanco says that LARC 2020 will be held in Miami. That concludes our live blog from LARC 2019. Thank you for following the event across these two days on Finextra!
13.45:: Swift's Blanco now takes to the stage to close LARC 2019. He says that there has been a lot of participation from the delegates throughout the conference. There have been a variety of learning opportunities around how banks can accelerate digital transformation in Latin America. Blanco says that transformation needs collaboration, and it is critical that the culture supports this collaboration.
13.38: People skills will be the most important skill in the new world, transformational leaders who can bring the best out of their people, Artigas says.
13.35: Rather than thinking of the internet of things, Artigas says we should think about the internet of beings. A shared reality is better than virtual reality, for example.
13.32: How do we control the bias of algorithms? Artigas cites the AI that was given a Twitter account, which had to be shut down shortly afterwards as it quickly became offensive.
13.27: With robotics replacing humans in the workplace, what should schools and colleges teach for the workforce of the future, Artigas questions, what will be the jobs of the future? We need to know this ahead of time in order to have a skilled workforce ready for that eventuality. She adds that innovation without humans is pointless.
13.23: AI can also create videos where you can make 'deep fakes', where people can be made to say things that they never actually said. What do all these AI developments mean for the future? Artigas highlights a number of challenges that exist for humans caused by AI, around citizenship, identity, communication and relationships, health and wellbeing, economy and sustainability, data and representation, and governance and security
13.18: Artigas notes that computer algorithms have now reached a point where they make fewer visual errors than humans. Next she shows on the screen how computers are able to generate fake images of people who do not exist.
13.14: Being able to predict and model the future supports business intelligence and helps institutions be proactive rather than reactive. Artigas turns to machine learning, and says that a training model for computers requires more data for more accurate results. She adds that the 'I am not a robot' tick boxes that you have to click on certain online forms is you effectively working for free for Google, as this is part of a huge training model for machine learning.
13.09: Access to broadband through mobile phones democratises knowledge, Artigas says. There is more capacity to do data analysis today also. Today people add to their digital footprint through so many devices, and big data can be used to analyse behavioural patterns. This lets companies tailor products for consumers that are far more personal, she adds.
13.03: People change and banks have to change to reflect this. As everything has moved to a digital field, and if you haven't learned from this then you are not going to survive in the market for much longer, Artigas says.
13.02: Disruption is the end of the status quo, Artigas says. The fourth industrial revolution is different to all previous ones as it has to do with the way we make decisions, affecting the way we think and brings us to question what the role of humans is in this regard.
12.59: Time now for LARC's closing keynote: 'Being Human in a Digital World'. This presentation is being given by Carme Artigas, Founder of Synergic Partners.
12.58: AI can be used to drive personality analysis of calls, Sherman says. Chat bots can also be tailored - he says there are two types of people that contact institutions when they have forgotten their password - one type will say they are terribly sorry that they've forgotten their password and please could you help, while another type will be angry and blame the institution for this. There's no one size fits all bot for this solution, doing that would alienate at least half your clients. Tailored multi-personality bots can figure out who they are talking to and address them appropriately, Sherman concludes.
12.52: Behavioural AI can help to link big data and consumer insights, which can deliver personality insights, Sherman says. This can be used to get deep insights into people you don't know.
12.49: Companies not only need data, but they need new data, Sherman says. Demographic similarities are one thing, but they don't give enough differentiation between potential customers. With big data, for example, banks look to forecast future actions based on past actions,. However, this isn't necessarily predictive.
12.44: Machine learning allows you to find patterns in data, which means it is a good approach for underwriting, risk modelling and analysis. Sherman says that the next challenge for FIs is to use AI to deliver value for customers.
12.42: There are two categories for financial institutions - delivering value for customers, and driving profits/reducing risks. Sherman says that the latter category is the obvious use of AI. Sherman says that banks have issues with risk modelling using neural nets, as the regulators aren't up to speed with this technology. However, very quickly this will become mainstream as our understanding of it becomes mainstream, he says.
12.39: AIs limitations can be its advantages, Sherman says. AI is essentially a narrow slice of our own abilities, but it has 100% focus and no distractions. In the context of financial institutions, Sherman says we are in the middle of a revolution. Using the example of desktop publishing from the 1980s, he talks about how this has since evolved to the internet, internet phones, glass phones, and most recently machine learning. Sherman says that machine learning is the start of AI.
12.34: Sherman now takes to the stage. He begins by giving a short introduction to IMC, which has been going since 2004 and is a lead partner for IBM Watson. He asks the question that many people have on this subject - what is AI and how does it work? He says that people have a neural parliament, with different parts of your brain fighting to put their point across.
12.30: Before we hear from Sherman, there is a presentation from Meylin Hernández from the SOS Children's Village of Panama, who Swift is recognising at LARC 2019.
12.20: Following that cautionary tale from Simmons, we are back in the plenary room ready for a presentation coming up in a few minutes that is looking at the rise of artificial intelligence in financial services. The presentation will be given by Stuart Sherman, CEO of IMC.
12.13: Simmons finds that the bank has written its own programme to send MT103 messages without using Swift interfaces. While the system they have set up is designed to only allow authorised users to send payment messages, the hacker has already compromised the system and can start checking what the buffers to payments exist. He is able to steal tens of millions of dollars with a few key strokes.
12.07: Having the level of access this hack has unlocked enables the cyber criminal to download sensitive files from the bank's server, Simmons explains. He downloads an accounts file that lists all of the users of the bank. He tries to edit the file to add a new employee, but it is password protected... this won't stop the hacker for long though, as they can use a tool to unlock and rewrite file protections.
12.04: Being able to upload web shell files to the bank server enables a hacker to access these files and see what they can then do with them - they have ability to execute commands as whoever is running the web service. Then they can explore what capabilities that user has, which the hacker now also has by default.
12.00: Tools exist that can find and target these kinds of password vulnerabilities very quickly. Gaining the log in information lets the hacker on to the bank's web server. They can then search what sort of information they have on there. Beyond that, the hacker can try to get to root. If this isn't possible, it is time to go back to the port scan to see what other ports are open.
11.57: LinkedIn is one source of data that hackers can use to confirm employees who work at the targetted bank. By confirming an employee works at the bank, the hacker can then work to find a vulnerability in the log in page to target that user's specific password.
11.55: Simmons runs a port scan that shows ones that are open. One port is for an admin, another is for mail, while another one is a web server. He investigates the web server port and finds a log in page online. By digging deeper, he finds the password data encoded into the web page, and is quickly able to set about cracking the code to unlock the real password.
11.51: The first port of call for a hacker is to go online to find an entry to an organisation. Searching online can find a bank's IP address relatively easily - from there the hacker can see which ports of the bank's IP addresses are open.
11.48: Simmons says he will show what hacking looks like from a hacker's perspective, which is very different to what you see in most Hollywood movies.
11.40: The live hack will be performed by Skylar Simmons, Red Team Operator at Swift.
11.36: Time for a break in the conference programme now. We will be popping over to the fintech space to see a live hack taking place by a member of Swift's Red Team.
11.34: Troetsch says that the change of culture needs to happen at every level of the economy, not just within institutions. There is a correlation between different sectors of the economy, he adds, some of whom may be relatively new to the concept of compliance.
11.32: Being proactive is important to benefit compliance, DePoalo says. Business units within institutions need to know their compliance people. It is also critical to test processes, find any deficiencies in your processes in-house first. Reis adds that institutions should look to go beyond box ticking compliance and imbed it into the culture.
11.29: We will all be part of the big data environment one day, Troetsch adds. Reis says that banks are working on ways to pull data from different legacy sources without rebuilding the data bank itself. But the most important thing is the quality of the data, he adds. DePoalo agrees that data governance is critical.
11.25: Sanin says more people studying computer science would be a big benefit to the talent pool for compliance. An analytical skillset is critical. Troetsch adds that the world will benefit from new technologies, but the challenge is to analyse data in a smart way and as quickly as the customer demands.
11.22: DePoalo agrees with the point from Reis, but says it is a matter of finding the tools that help them do this and also convince the regulators of the validity of technology replacing people in any area where it comes to identifying suspicious activity.
11.20: Conversation turns to innovation and new technologies. Reis says that integration of new technologies are not as far as some sales people would have you believe. Looking at the retail side, you can track people where they are with their smartphones, which allows you to see trends and patterns in data. That aspect of technology is available today, and he says it is the best source of business intelligence today. Robotics will also help replace manual processes in the coming years, but banks need to ask what the unique value offering is that they have. Reis says financial institutions need to focus on where they are strong, and also look at disintermediation for certain services.
11.15: Shell companies that hide beneficial owners are a target for European regulators, Reis says. However, over in Europe there are also problems such as with negative interest rates, which is changing the nature of the approach to corresponding banking. The are moving away from a 'more connections the better' model, and are asking whether the revenue a bank may bring in is worth the associated risk.
11.12: Sanin says that being from a bank that operates in a number of Latin American countries, she sees the strides that they are taking to tackle money laundering. Reis comments that education is an important aspect in this regard.
11.06: Beneficial ownership is the biggest compliance challenge globally, Freis says. The question is who is behind the corporate entity - what is the nature of the corporate business, where are the funds coming from? An area where this is most powerful is in anti-corruption - if you are misusing public office, these funds will be funnelled through another company. This is difficult to address. However, if it is done right it should be a level playing field across all countries, he says, so collaboration and innovation to create common standards, such as the Swift KYC registry, help in this regard.
11.02: The importance of marketing around what countries are doing with regulations is important, DePoalo says, getting this message to reverberate the enhancements to AML controls around the world.
11.00: For Troetsch, corporate governance is critical to ensuring that compliance is understood across the whole organisation. This also allows institutions to be proactive rather than reactive, and it should be integrated into a bank's risk programme. Speaking to different banks in other regions also helps support the understanding of compliance in a bank.
10.57: Sanin shares the need for compliance to be close to the business. Compliance programmes need to be reviewed at a regular basis to ensure they share the ethical principles of the organisation, as well as the regulatory rules. In compliance, she adds that they are also trying to improve the customer experience by being as agile and efficient as possible, by using new technologies, such as bots to scan for suspicious operations and comparing customers with a pool of peers, for example.
10.53: The digital world is so fast-paced, Jiménez says, how can compliance keep up? DePoalo says that compliance needs to engage with the business team in the bank in order to understand new clients before the onboarding process has begun. AML compliance in the bank could call a similar person in the potential client organisation at the start of this process, for example. It is important to find out if correspondent banks have similar controls in place. Repeated requests for information that go unanswered will quickly raise red flags in this regard.
10.50: For Sanin, corruption is a major compliance concern, ensuring that their clients are not involved in any forms of this and making sure that technology is being used to identify corruption swiftly and successfully. She adds that there needs to be public policy that drives measures against corruption. On another note, she is concerned about the increase in use of cash, viewing this as a risk issue for financial institutions.
10.47: DePoalo comments that sanctions is probably one of the biggest compliance challenges. Sanctions are more complicated and granulated today. Banks need to speak to each other to understand that they are all interpreting these in the same way.
10.44: Freis says that compliance is important and that there is an overwhelming amount of change happening at the moment. Dealing with fraud comes back to an aspect of trust and the confidence in the bank. Compliance has to be aligned with the digital transformation of financial institutions as a whole. The most important thing is to know your customer and how to serve them, he adds, and being able to do this encourages compliance.
10.42: Troetsch starts by saying that in terms of compliance, two topics are driving discussion. The first is around the change of pace of regulations, while at a Latin American level the derisking factors are also critical. Small and medium sized banks need support in order to help their economies. He adds that the changes in Panama over the past five years are a positive move to boost transparency and fairness in financial services. The challenge for the banks then is to implement these changes quickly and effectively. He notes that if his child was heading to college today he would urge him to study compliance as it would lead to a good career.
10.35: Time now for panel discussion that picks up some of the themes from that address. Titled 'Rethinking Compliance - The Evolution of AML in a Digital Era', the panel is made up of Maristella Aldana Sanin, Chief Compliance Officer at Bancolombia, Sandra DePoalo, Managing Director, Global Head of AML with
BNY Mellon
, James H. Freis, Jr, Chief Compliance Officer and Managing Director at Deutsche Börse Group, and Carlos E. Troetsch, Partner and Executive Vice President at MMG Bank & President of FELABAN
. María de Lourdes Jiménez, President of FINCAdvisors, is the moderator.
10.33: Fernández concludes by saying that the momentum for tackling AML and financing of terrorism will be continued, and benefits the country as a whole. Panama has achieved improvements with the FATF specifications, and will continue to do so to ensure a banking sector that is safe, solid, and world class, he adds.
10.29: Panama wants to continue to strengthen good corporate governance in senior management of financial institutions in the country, Fernández says. This has been achieved through online modules with over 27,000 participants. He adds that from December 2016, sanctions against banks have been published on the Superintendency of Banks of Panama. Banks are requesting analysis of compliance so that they can improve their processes, he adds.
10.24: Panama has strengthened at an institutional level due diligence in this regard, Fernández says, with a focus on hiring and training staff that work in assessing AML, and also through use and deployment of technology. Tax evasion is also being addressed, with a digital tax identification number introduced. Panama now has complied with 35 out of 40 recommendations from the Financial Action Task Force (FATF) for tackling tax evasion, Fernández says, compared to just four out of 40 in 2014.
10.18: Fernández says that Panama has taken steps to enhance anti-money laundering (AML) efforts and prevent terrorism finance. Panama has approved six laws and 20 regulations since 2015 to support AML. Measures for due diligence have been stepped up, as have know your customer (KYC) laws.
10.14: That concludes the opening panel of the day. Now it is time for an address from Ricardo Fernández, Superintendent of Banks of Panama.
10.12: Concerns about new technologies taking over all jobs need to be tempered, Gonzalez says, as people always find new things to do. Even with AI and robotics in the workplace today, many unemployment levels are low. People that have more success are people that are embracing new technologies, he adds.
10.10: An environment that supports innovation requires trust, Hofman says. You need to create safe spaces where failures can be learned from. If you want to go far, go together, Goh adds. Fundamentally the core of innovation is looking at a problem holistically and with empathy. Failures help build resilience and grit to come back with more creative solutions each time, she says - it is like going to the gym to work on your muscles, you have to put the work in.
10.07: Working with government industries, Goh says there is a desire to balance risk and foster innovation. Creating an enabling environment for fintechs to flourish is vital.
10.05: Not all unicorns make money, Gonzalez says, citing Uber as an example. There needs to be a level of caution in this regard. Hofman notes that there aren't too many unicorns in the Latin America at least, but it is important to keep scrutinising which fintechs have solutions that can actually benefit society. She says there is the potential to see many more hubs in cities all over Latin America that can support the whole region, and a decentralised innovation ecosystem in the region should be encouraged.
10.02: Women need to be encouraged into STEM education to help boost the talent pool in terms of the human capital shortage in Latin America, Goh says. Hofman adds that her organisation has a project specifically designed to get more women into robotics. Gonzalez says there is a need for society to embrace this kind of innovation - he marvels at the foresight 150 years ago to build the Panama Canal, and questions whether this type of vision has gone from society today or not.
09.58: Sandboxes that allow for design iterations in a safe environment are important, Hofman notes. If you look at the readiness of countries in Latin America for a framework of data use, there are only one or two that have something, she says, so there is scope to catch up with the rest of the world here. Also, talent in data science and computing is critical. Strategies around this are critical for the region to catch up with the leading regions in the world.
09.54: Pavoni asks if scale is an issue in this regard. Gonzalez says that curve for smaller fintechs to be successful can be very long. He adds that Mexico is number five in terms of Facebook accounts in the world, which shows the potential for take-up that exists in the region.
09.52: Hofman adds that the most collaborative solutions can be the ones that help to drive innovation with financial inclusion, offering insights from places that banks may not know too much about first hand. But it also depends on there being banks who can use the expertise in transforming and enabling new technology to support this.
09.50: How can investment in technology support financial inclusion and sustainable development? Goh points to Ant Financial, looking at how they are changing people's behaviour around environmental issues through gamification strategies. She says these different consumer patterns can drive active usage in financial services. Technology combined by empathy and a customer-centric view can change behaviour.
09.45: Gonzalez says that many people were building their own Amazon 20 years ago, but there's only one Jeff Bezos. Today it can be hard to assess fintechs to understand which will be truly successful and which will fall by the wayside.
09.42: Look at innovation from a holistic point of view, Goh says. Bring international bodies that are already thinking of this so that any potential unintended consequences can be addressed.
09.39: As an investor in fintechs, Hofman says that it is vital not just to look at their technology, but also the team and the business model are vital to scrutinise, so you know that they can go to scale. She says there are 18 unicorns now in Latin America, and they are models that can show others how to do things to get to that size. This also has to happen in a responsible way, with a good focus on cyber security as well as innovation.
09.34: Noting how his organisation has invested in fintech, Gonzalez says that companies should not miss the opportunities that exist today with regard to innovation, or they could find themselves disrupted and out of business. He says that fintechs aren't taking over the world on their own, but they certainly help focus the mind as to what organisations should look to digitise in-house and where they should look to partner or acquire fintechs.
09.32: Having come from the private sector but also working very closely with the public sector, Goh says that public/private partnerships are vital to drive innovation. She says the World Bank launched its first blockchain bond with Commonwealth Bank of Australia, and also worked on 'AI for Famine' with AWS, Google and Microsoft to use data smartly to address famine issues. She says that these kind of partnerships help drive technology innovation for good.
09.28: Pavoni asks what the sweet spot is in the private/public relationship for innovation. Hofman says we live in an era of access and experience, infinite computing, ubiquitous open innovation, and access to limitless data. Any response to these trends requires collaboration, across institutions and also teams within individual banks too. It is important to instil the mindset of collaboration to allow innovation to happen.
09.24: Gonzalez says that the biggest challenge in the digital era is taking time to switch off and think. New technologies can be overwhelming. Anything within your organisation can be improved with data analytics, but you need to have a focus about what you want to achieve.
09.21: Goh says that her focus is how technology can be use to solve problems - innovation is a mindset shift. How can technology be used to generate better equality. The World Bank has an innovation focus on building the digital economy, to boost human capital by driving skills up, and brokering public/private partnerships that can help bridge the gap between private capabilities and public concerns. It's also important to look at innovation from a governance and cultural point of view.
09.18: Hofman begins by commenting that her organisation has the luxury of always thinking about innovation, finding new ways of solving financial and environment challenges in Latin America. Data and the use of predictive models can revolutionise access to key services. She cites a comment from yesterday, that innovation never ends. You need to feel comfortable feeling uncomfortable.
9.14: Blanco now invites the first panel to the stage. The title for this panel discussion is 'A View from the C-suite: Transforming from Within'. Participating on this panel are Irene Arias Hofman, CEO of IDB Lab,
Lesly Goh, Chief Technology Officer at World Bank
, and Mauricio Naranjo Gonzalez, CEO of Grupo Financiero Monex. Silvia Pavoni, Economics Editor at The Banker is the moderator for this conversation.
09.10: Ignacio Blanco, Swift's Head of Latin America & the Caribbean takes to the stage to welcome everyone to the second day of LARC 2019. He reflects on the previous day's conversation around the digital revolution, and that we are operating in a hyper-connected world that creates as many challenges as opportunities. Turning to today's agenda, he says there will be a focus on compliance in the digital age, as well as how technology will impact humanity.
09.00: The plenary hall here in the Hilton Panama City is filling up rapidly, and the programme for day two of LARC 2019 will be underway shortly.
08.00: Welcome back to Finextra's live coverage of Swift's Latin American Regional Conference (LARC) for 2019, from Panama City. Today the programme promises a view from the C-suite, a look at the evolution of AML, a live hacking session, and more. We will be getting underway in just over an hour, so bookmark this page and come back then.