#35 – RegTalks with Ben Parker, eflow Global

Transcript

Welcome to Reg Talks, the podcast dedicated to the latest trends from the world of regtech, fintech, and financial regulations.

My name is Claus Christensen, and I’m the CEO and Co-Founder of award-winning RegTech provider Know Your Customer. Today, it’s my great pleasure to welcome Ben Parker as my guest. Ben is Chief Executive Officer and Founder of eFlow Global, one of the world’s leading regtech providers.

Ben is an expert in financial services regulation and has a wide range of experience in tackling market abuse and developing the latest advances in trading surveillance. Recognising the growing regulatory pressures that compliance professionals are facing, Ben’s mission at eFlow is to create a new standard for digital infrastructure that can allow businesses to get one step ahead. Ben joined the company in 2004 as COO and most recently led eFlow’s Series A funding round of seven million pounds.

Background and Journey of eFlow Global

Ben, thanks so much for joining us today and for opening our new season of Reg Talks with me.

Thanks for having me, Claus. It’s a pleasure.

To start, tell me a bit about eFlow Global and your journey as founder and CEO.

Yeah. Sure. So as you said, 2004 was when we started the business. We’ve just celebrated our twentieth anniversary. My journey started in risk systems in, actually, German lenders’ banks, a couple of them. We formed in 2004 off the back of some of the challenges that, you know, I’d experienced personally in that space. At the time, I brought in two family members, actually, my mother and brother, and we came from different areas of the same market. My brother was CTO at an insurance with Marsh in Australia.

We combined our efforts. We acquired a platform that we’d recently developed and actually sold. We brought all of that IP back, and we started our journey in trade life cycle management. Then, if you look at the journey of eFlow, it’s pretty much split into two: the pre-regtech life, and the post-regtech life. Before that, as I mentioned, we were half professional services and trade life cycle management, and then post-journey, which I’m sure we’ll talk about today, is as a regtech solely business.

Transition from COO to CEO Role

Very interesting. First of all, congratulations on the twenty years. I always think of us as veterans by now of eight, nine years, but that is impressive. I noticed you started as COO and then changed into CEO later. I always wondered, did we miss out at KYC for not having a chief operating officer? We don’t currently, and I’m really wondering about that. My question really is, was it difficult to transition? Were you able to let go of operational stuff with the change, or are you still doing that as well?

That’s an interesting question because I almost went back into that COO role when we moved to the sort of regtech business, and I had to learn that release of control and delegation and everything again because we haven’t changed the business model since then as well. We’re a cloud solution these days rather than on-prem. So it was a different mindset, and, in fact, I feel like I’m having to do that again as we scale up after the Series A.

Challenges of Leadership Transitions

Yeah. That’s interesting. It’s something I wouldn’t necessarily reflect on, but it’s something I’ve had to do three times within my journey with eFlow. Two times almost going back into the COO role, and now as CEO and delegating. We operate almost without a COO these days with very strong department heads in place. I think that with the CEO role anyway, there are some blurred lines, and we see a number of times it’s a normal career transition from a COO position to CEO as well. Frankly, I prefer that than from the CFO position to the CEO.

Reasons for Focusing on RegTech

Well, it is a learning journey for all of us, and I think that’s the thing that keeps us interested and keeps us getting up every morning. I saw that as a constant with most of my guests. We’re both in the regtech space, and I’ll talk about my reasons. But why did you decide to focus on regtech in the first place? Was it an accident, or did you see this opportunity from the very beginning?

Yeah. I think that where we were operating in a sort of middle office space, there was a natural inclination to go to regtech anyway, and it was very much like a bolt-on offering that we had in the early days. But we also had a vision at the time to move to sort of more purely tech and then ultimately further down the line in the advent of cloud solutions, we wanted to move to the cloud. We wanted to be scalable, and we saw that as an opportunity to scale.

Adoption of Cloud Technology in RegTech

There was an adoption, certainly resistance in the capital markets area that we’re in to move core business functions of which trade life cycle was one of them to a cloud solution. We found that there was actually great traction to move the regtech offerings that we had in that direction. It was well-timed for us post-2008 and the adoption of regulation globally. It’s not just us; it’s across the market. So we saw the opportunity there to expand that offering and move in that direction to cloud-deployed solutions.

It ultimately comes down to where the data is housed. Some of the capital markets were very behind the times in terms of what they thought data security was. But from the regtech perspective, they were happy for that to be cloud. I think the capital markets were always very early in using technology. Anywhere where there’s large streams of money involved, that totally makes sense, and they have been advanced. In our area, I always felt that KYC, especially business entity verification, was behind the curve, and it took a while longer, hence the later starting date for us. When we started, we were still early in our area. It’s a different journey there, but the same conclusion.

Cross-Border Opportunities and Challenges

One of the first decisions we made in 2015 in KYC was setting up our solution in the cloud rather than traditional on-prem deployments. At an even earlier time, you seemed to have come to the exact same conclusion that that’s the right thing. What do you see as the benefits that cloud technology has brought to regtech?

Benefits of Cloud Technology in RegTech

Well, it’s allowed significant numbers of players into the market. It’s not just the reserve of the big tech firms with infinite resources. So, and I’m sure that you found that as well. Series, they’re able to deploy. It gives the markets where client base options in terms of best of breed technology so they’re not stuck with the big traditional names.

And I think that, certainly from a growth perspective, when we’re looking at our own benefits, the scale that we can put on our products and the speed with which we can release them, we can grow. And, ultimately, as and I think this comes back to sort of anywhere within the regtech market. The concept of cross border or cross market regulation, it facilitates that a lot easier than traditional sort of on-prem solutions as well.

Yeah. Well, I think it for us, cloud was a great equaliser because we were able to build solutions within cloud technology in 2015 that were as good or better than on-prem solutions offered by the very big, established players in the scene. And I think that that is an amazing side effect of this technology that a lot of people can build now, very, very interesting components. And, also, the interoperability of cloud technology because they’re immediately set up in a space that is by definition out there and can communicate with others is a great starting point. You mentioned cross border. That’s actually interesting because we also focus on cross border opportunities in many ways. Our solution is especially good for banks, financial institutions that are set up in a way that they need cross border verifications.

Challenges of Cross-Border Regulation

Cross border regulation is known to be diverse. What are some of the challenges that you see, and what are your thoughts on regulators working together towards a more unified approach?

Well, I think that in Europe, you obviously have the overarching ESMA, so the European securities market authority, and that does provide you know, one would say there is no border within Europe, and potentially that is the case, but that you still have the local NCAs within each country within Europe. And so that overarching authority does allow for less friction in order to implement cross border regulation. But what we’re actually seeing is that within our space, within regulatory reporting within OTC derivatives trading, for instance. There is a harmonization across across border within Singapore, Australia, and Europe as well in terms of using the same unique product identifiers, which has traditionally been an issue when reporting and surveilling OTC products and derivative products.

So that’s a great step in that direction in terms of disparate, regulators that aren’t necessarily under one arch and working together to actually harmonize and provide a global structure there. So that’s sort of one example that, you know, the challenges are many, and they have to look after their own interests as well. But, certainly, I don’t think we would have had that collaboration or at least alignment if we were looking back ten, fifteen years ago when we started out.

Diversity in Anti-Money Laundering Regulations

Funny enough, I would say, again, anti money laundering, the AML space is behind the curve there. There is some corporation. And certainly in Europe, you would think we have one regulator. Basically, the European Council issued the AML directives number four, five, six now.

But they are transposed into national laws sometimes a bit differently. And so the national regulations in each member state still diverge a bit. For example, in verification of individuals with video, two-way video required in some member states, but not in others, that sort of thing. We hope that that accelerates to a more unified approach with the new AML authority that’s being established.

But internationally, even though everything is under the FATF oversight Yep. Is still very diverse. I tend to see it as an opportunity for us because we do cover it already, and it’s a kind of difficulty for new market entrants to deal with that. Yeah.

Why do you think that they do that? Is that because of the lack of access to the right technology in those regions?

No. I think it’s it is really more philosophical differences in the approach. Like, if you look at the global thing, the European thing is I think that’s just history that takes a while to shake itself out. But internationally, it’s definitely different approaches. For example, in the US, there is an AML UBO authority now, a UBO database that they established under the new rules, but that is private. Nobody has access except law enforcement and under some circumstances, banks, but no outsider can see all that. That is because of philosophical differences between the regulator regimes in the US who owns a corporate structure is nobody’s business except that person’s bad companies.

In Europe, we decided for transparency. Transparency as a good thing and the light of transparency eradicating all sorts of problems. And I think, yeah, those differences shake out in regulation nowadays.

But, yeah, we’ll we’ll deal with those now.

Philosophical Differences in Regulatory Approaches

It’s interesting you say that because we find there’s similar challenges in the US. Now they are when it comes to you use the word transparency, and that’s very appropriate. It’s the MiFID regulation is applicable to us in Europe, and, you know, that is about transparency in markets. And in the US, there is certainly in the surveillance space, there is a move towards greater transparency, but it has been almost a a cloak that the transparency is bad for business, and therefore, that it’s been behind the curve. But we actually are seeing that there is more alignment in the US market under SCC and FINRA in our space. And that’s why it’s a good a good growth opportunity for us in the record.

Well, again, it is both a challenge and an opportunity as always. Yeah. We do have to talk a little bit about AI. I don’t know. Yesterday, we all saw another slew of releases from OpenAI. It’s just amazing the speed of development currently in the whole AI world, especially in generative AI. What do you think about the impact of AI in the regulatory space?

Impact of AI in the Regulatory Space

I think that there is, clearly, it’s gonna be an asset to the regulatory space. You know, we’re we’re all looking for optimisation of automation. Ultimately, it has to be used as doing the heavy lifting. It can’t be.

We talk about the type of black box scenario when certainly, when we’re looking at surveillance and behavioural analytics, etcetera. You know, we’re not trying to automate the decision making. It has to have that human element, the sign off, so that we don’t have algorithms running a mock. But we’re actually involved in an AI tech sprint with a number with a particular regulator at the moment.

I probably can’t say too much about it, but it’s it’s interesting that that is being very much vendor led. So it’s being led by academics and the market rather than necessarily the regulator themselves. So it’s from their perspective, I almost feel like they they know that it has to be adopted, but they also don’t know how to put that get their arms around it. And they’re looking for the market and those that have been in the market.

Potentially, they can’t really say that there’s many AI experts out there in the world, but they’re looking to us to actually look at how it’s being adopted within outside in the area of the market. And I know that we’re not the only vertical in the red tech space that has been invited to take part in these AI specific tech sprints.

Yeah. We see limited initiatives from the regulators that we interface a lot with MAS, HKMA, NP, the European ones. We see obviously an interest, but it’s very, very careful in many ways. And I think that mirrors the approach in in the banking sector in general. They look towards it, and they also do not want that black box approach where the machine makes all decisions and there’s no accountability and no explainability for those decisions anymore.

We’ve used, in our in KYC, we’ve used AI from the very beginning in 2016. And in, like, not so much headline grabbing way, but quietly, internally, very successfully.

Use of AI in KYC and Regulatory Compliance

I think that’s the right approach. If you can find a niche where it’s effective, it can be extremely effective. But that said, I am really excited about the new generative AI capabilities in our space. We use AI to extract data from documents in some ways. It will move that to extract meaning from documents, and that is quite an interesting idea. Like, I’m very positive about that.

Yeah. Well, our purpose is to reduce false positives and near misses, etcetera, when we’re doing our analysis or surveillance and where we’re blending communications from chats, whether it be WhatsApp, instant message, voice to text, etcetera, where there’s vast amounts of data. Without those sort of large models, you know, we’re still in a rules-based approach. So it’s for us, it’s a significant leap forward. We just have to make sure that we control it and deploy it effectively because what we don’t want is that we go in the other direction and that we’re creating more false positives than we’re actually solving.

Yeah. Yeah. Yeah. That’s true. One thing not affecting us at KYC so much as we’re currently focusing more on the traditional banking sector is the upcoming MICA regulation.

MICA Regulation and its Impact

That’s different for you. What can you tell me about MICA and the impact it will have in the US and Europe?

Yeah. Well, MICA’s obviously, specifically will be biggest impact in Europe, and it’s the closest thing I can relate it to again is the method regulation that we had. So in terms of the sort of timeline that we’re looking at, it’s come into effect for stablecoins in June this year. There is a sort of a two-year grandfathering period and sorry. And then next year, it comes in for everything else. But from our perspective and the sort of market abuse space, we’re still looking at the same things that we are with the method regulation and market abuse regulation. We’re looking at market manipulation, disclosure of inside information.

The manipulation on those trading in crypto assets, you know, it’s slight variations on that. So there is a period of watching and waiting and seeing what, you know, how we’re gonna adapt our tools and provide those solutions for the market and how those systems and controls work. But, ultimately, for us, it’s very similar to what we’ve done previously within certainly within the European Union and UK because the UK will follow suit as well. What happens in the US is, from our perspective, still a grey area. Having said that, some of the biggest providers of crypto-related surveillance are actually based in the US. So they’re almost creating the rule book there and then potentially see what the regulators do off the back of that. But from our perspective, we will apply what we’ve learned and what we’re going to implement in the EU and UK to the North American market.

It fits to me, it fits like, another quite significant step for the digital asset crypto scene to be moved towards mainstream trading. You think it’s fair?

Absolutely.

Absolutely. So it’s the biggest pan-market regulation that we’ve had in the crypto space, and so it significantly is moving towards the mainstream. You know, we see that those even trading on retail platforms can access the crypto market as well. So it’s, you know, it’s democratising trading again, but for crypto assets.

Well, exciting times. Thanks so much, Ben. I learned a lot again, and that’s always what I’m looking for when I talk to people here on the podcast. Thanks for joining, and hope to stay in touch.

Yeah. Thanks for having me, Claus, and likewise.