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Compliance Solutions for Capital Markets MIFID Pal Ribarics Oracle, Financial Services Solution Team EU Enlargement Countries pal. [email protected] com Dubrovnik, 9 May 2007
Mantas Overview of Mantas/Reveleus/Oracle MIFID Mantas Trading Compliance Solution Competitive Differentiation
Latest news Oracle stake in i-flex goes up to 83% Reveleus acquires Mantas Citigroup signs Reveleus Operational Risk for an Enterprise-wide RCSA deployment Reseller Agreement signed between Oracle & Reveleus for Reveleus Operational Risk Reveleus Basel II solution is ranked in the Gartner leaders quadrant for 2006 as well, most competitors fall behind Reveleus Operational Risk ranked among the top Operational Risk solutions globally by analysts Reveleus ranked 4 th in a Chartis Research Report covering the Top 100 Risk Management vendors worldwide.
i-flex Completes Acquisition of Mantas for $122 M 03 -Oct-06 i-flex solutions Completes Acquisition of Mantas Now a Wholly Owned Subsidiary of i-flex solutions; S. Ramakrishnan Appointed as CEO Mumbai, October 3, 2006: i-flex® solutions (Reuters: IFLX. BO & IFLX. NS), a leading IT solutions provider to the global financial services industry, announced the closing of its previously announced acquisition of Mantas Inc. , a provider of regulatory compliance, loss prevention and revenue generation solutions headquartered in Herndon, Virginia, USA. Under a definitive agreement announced on August 14 th, Mantas was acquired in an all cash transaction of US $ 122. 6 Million. With the completion of all regulatory approvals, Mantas is now a wholly owned subsidiary of i-flex solutions. S. Ramakrishnan, CEO of Reveleus-i-flex's Business Analytics division, will take additional charge as CEO of Mantas. SR has nearly 25 years of banking and technology experience spanning India, the Middle East, Singapore, New York and Silicon Valley, and has led Reveleus from a start-up to a leading product in the Risk and Compliance space.
Reveleus Enterprise Risk & Compliance Offerings Risk & Compliance Infrastructure Enterprise Risk & Compliance Applications Reporting & Analysis Capital & Performance Management Internal Reporting & Analysis EDW Basel II/ 1 A Economic Capital Risk & Compliance Repository Risk Based Pricing RAPM Credit Portfolio Optimization Enterprise Risk Analytics Loan Systems Treasury Systems Aggregated & Relational Reporting Risk & Compliance Business Metadata Liquidity Risk Retail Credit Risk Corporate Funds Transfer Pricing Credit Risk Operational Risk & Compliance Collateral Systems General Ledger Rule/Run Framework Information Vendors Op. Risk Data Interest Rate Risk Process Loss DB Mapping RCSA Internal Controls KRI External Reporting Home/Host Reporting Action Economic Planning Capital Adequacy Reporting Anti - Money Laundering, Fraud & Surveillance Modeling Framework KYC/CDD Transaction Trading Monitoring Compliance Broker Fraud & Anti Theft Compliance Local Regulator Reporting
Mantas Overview Introduction and Differentiators Only company demonstrably proven to provide integrated, single source compliance for all FS businesses anywhere in the world. Current surveillance statistics for Mantas Software: u 125+ production deployments u 122 countries - AML u 700 million transactions per day u 16 languages u Retails Banks u Wholesale Banks u Private Banking and Asset Management u Institutional Brokerage u Prop Trading u Capital Markets u Retail Brokerage u Investment Banking u Mutual Funds u Insurance 211 jurisdictions - Trading Compliance u Only company providing surveillance for: The most coverage of any provider - nearly 300 different exposures/risk monitored 10 patents pending. Only compliance company in BTN Top 10, Waters “Best Compliance Firm” 2 years in a row. …. and hence offers a compliance TCO substantially lower than alternative compliance IT costs or piecemeal vendor selection. ROI counted in months if not weeks.
Market Leadership A worldwide leader in enterprise AML, compliance, fraud, operational risk and business record assurance solutions for the most sophisticated financial institutions globally Representative Customers Industry Awards 2005 Waters Names Mantas as Best Anti-Money Laundering Solution For The 2 nd Year In A Row 2004 Waters Editorial Awards: Best Anti-Money Laundering Solution Mantas Named Best AML Solution in Waters 2004 Rankings Mantas Named Among “BTN Top Ten Technology Companies To Watch” Mantas Highly Commended in The Bankers 2004 Technology Awards 2003 Waters Editorial Award: Best Compliance Solution Mantas Named a Leading Force in New Tower. Group Report on AML Vendors Butler stated, “Mantas is ‘A Powerful Response’ to Compliance Needs” Celent Ranked Mantas as a Leading AML Solution
Summary of Mantas Every Product, Every Business, Every Country, Every Size – Our Track Record is Impeccable Mantas is worldwide leader in AML, compliance, fraud, operational risk and business record assurance solutions to the most sophisticated Financial institutions globally. Examples: Volumes/Size 150, 000 Trades a day analyzed. 300, 000 accounts in Chicago area 10 million trades a day in London, Singapore and New York covering 150 exchanges. 50, 000 High Net Worth Accounts in NE United States 200 million accounts in 61 countries. 2 million accounts in Switzerland.
Mantas Behavior Detection Platform Unmatched product coverage across widest set of possible transactions and events Fraud Management u Operational Risk Management Identity Theft Unparalleled accuracy of powerful behavior detection engines Basel II Anti-Money Laundering Capital Adequacy Trading Compliance Self Assessment Broker Compliance Consumer Credit Regulation USA Patriot Act EU Mi. FID EU Market Abuse Directive Terrorism Act 2000 Client Assurance Margin Management u Cross-Selling Customer Churn BEHAVIOR DETECTION PLATFORM 250+ different exposures / risks / opportunities monitored Contact Management Outstanding add-on tools that enhance the applicability of the Mantas products u “Outstanding Coverage” – Trading Compliance User Group Meeting, December 2005 (ABN AMRO, Bear Stearns, Barclays Capital, Credit Suisse, Goldman Sachs, SSB) Tremendous intellectual property and domain knowledge (10 patents pending) Positions Mantas as a key integration component for workflow systems
Mantas Behavior Detection Platform Architecture. Packaged, Proven & Powerful. . . Case Management Alert Management Tasks / Phases Life cycle Data Ingestion ► Provides data consistency and transparency across the enterprise ► Enables seamless, cost-effective expansion and customization ► Required step in implementation of Mantas’ solution Data Model ► Enables the world’s most accurate and sophisticated behavior detection analytics ► Leveraged by Mantas customers, as part of their Six Sigma programs, operational dashboards and reconciliation processes Behavior Detection ► 10 patents pending Data Model & Behavior Detection Alert Management ► The most powerful set of approaches to solve each specific business situation being addressed ► Highly flexible alert management allowing certain alerts to go to specific individuals and be scored in the most effective manner ► Flexible definition of behavior of interest that caters to each institution for any type of transactions ► Enables users to view alerts with full documentation and reporting requirements Document Management ► Fully integrated investigative workflow that connects to any other sources ► Transparency and compliance to all activities within each investigation ► Direct interface to other systems including law enforcement Active Pages ► Ad hoc real-time reports can be created in a matter of hours ► Flexible and ad hoc visualization without encroaching on the discipline and rigor needed to manage compliance and risk ► Very powerful graphical interface
Financial Services Data Model (FSDM) - Subject Areas CUSTOMER MARKET ENTERPRISE SECURITY ACCOUNT TRANSACTION TRADE
Trades in FSDM All Supported Asset Classes Demand for financial instrument to be bought or sold Means by which order is satisfied Combined demand means by which Financial instrument is bought or sold 0 1 Order Summary M 1 Trade Summary 1 M 1 1 0 M Execution Summary M 1 Order Events New Cancel Route Cancel & Replace Modify Desk M Trade Execution Events New Cancel Correction Cancel & Replace Order Interface Trade Execution Interface 1 M
At The Heart - Detection Engines • Mantas uses a tested and proven combination of 5 behavior detection engines to apply the right technique to identify complexity and accumulate evidence. (most competitors use one , 2 at maximum) • Mantas currently has 14 patents pending around these activities and algorithms. Profiling Text Mining Rule Patterns Sequence Matcher Link Analysis
Increasing Detection Accuracy ACCURACY Tune thresholds as necessary Suppression of non-exposures Score against risk Profiling Outlier Detection Text Mining Rule Patterns Link Analysis Sequence Matcher Set transaction thresholds Tune patterns to the data DAY-TO-DAY OPERATION FOCUSING IMPLEMENTATION STAGES BEHAVIORS
Scenario Threshold Editor Suppression of non-exposures Score against risk Tune scenarios to the data by setting initial limit thresholds Tune scenarios to the deployment by setting initial filter thresholds IMPLEMENTATION STAGES Tune thresholds as necessary DAY-TO-DAY OPERATION Increasing Accuracy
The Goal…an alert
Integrated Alert Management and Workflow Identification of risk, complete end to end investigation
Transaction & Alert Repository
Mantas Overview of Mantas MIFID Mantas Trading Compliance Solution Competitive Differentiation
Introduction to Mi. FID What is it? Introduces a consolidated regulatory framework for European markets in financial instruments in order to deliver i) Retail Investor Protection ii) Investment Services ‘passport’ to market transparency Part of the EU Financial Services Action Plan (FSAP) u One of the Lisbon 2000 Strategy reforms to create a single market for wholesale financial services Supercedes the EU Investment Services Directive (ISD) Enforced regulation in 28 EU countries Implementation by November 2007
Introduction to Mi. FID Provisions Post-trade Transparency Passporting Rights • Whether on regulated markets, MTFs or OTC, trading in shares are subject to a post-trade transparency obligation • Improves operation of single passport for investment activity • Firms able to establish branches in other member states and offer crossborder services • Host country responsible for ensuring compliance with conduct of business requirements Pre-trade Transparency • Establishes minimum standards of pre-trade transparency for shares traded on regulated markets and MTFs • Obliges systematic internaliser to undertake public market-making obligation - must provide definite bid and offer quotes in liquid shares for orders below 'standard market size' Mi. FID Client Management Order Handling & Execution • Firms must ensure best possible deal for clients taking into consideration price, cost, speed and likelihood of execution and settlement • Extensive and requires significant changes to the FSA's Handbook • Most sensitive is requirement for firms to conduct full suitability test on clients when providing investment advice or portfolio management
Markets in Financial Instruments Directive (Mi. FID) The Market in Financial Instruments Directive (Mi. FID) - Executive Summary The Market in Financial Instruments Directive (Mi. FID) shares many commonalities with the Market Abuse Directive, enacted late last year. Both directives are aimed at the creation of a common financial services market throughout Europe. In most cases, the 42 -step process derived by the European Union towards this goal has focused on a “harmonization” of existing regulations between member states. Mi. FID is a departure from this approach and instead introduces regulations more akin to best execution and advice regulations currently in force in the United States of America. Mi. FID, like any new regulation, presents financial institutions with a variety of choices: q They can take no action, and hope that current systems will satisfy the new regulatory requirement. q They can address each new directive and regulation independently. q They can adopt a comprehensive and holistic approach towards compliance that protects the firm Mi. FID can be summarized into eight categories: Mi. FID Category Description Conflicts of interest Establish organizational structure and procedures that avoid conflicts of interest Conduct of business Common conduct of business standards are established Best Execution Client must receive the best possible execution quality and price Passporting rights Firms will have access to consistent banking practices across all EU member states Investor classification Establishes a common EU framework for classifying counterparties and clients Regulated market and MTF standards Opens all trading venues between member states Pre-trade equity transparency Establishes minimum standards of pre-trade transparency across all trading venues Post-trade equity transparency All transactions are subject to post-trade transparency obligations and reporting
Markets in Financial Instruments Directive (Mi. FID) The Market in Financial Instruments Directive – What is it? Mi. FID, is aimed at the creation of a common financial services market throughout Europe. Industry Problem Statement Mi. FID Correction There are currently 25 member states, each with individual and unique regulatory requirements Mi. FID seeks to create a consolidated suite of trading rules across all EU member states. Essentially creating regulatory harmonization of trading operations. Regulations across asset classes are not consistent, create confusion and opportunity for malfeasance Mi. FID extends regulatory coverage from Equity transactions to Commodities and Over the Counter Instruments. Client trades are often executed on exchanges that favor the financial institution and not the client Mi. FID demands that customer trades are executed on the best exchange for the best price at the time of order fulfillment. This is known as Best Execution. Trading venues are not always favored for price or best bid/offer Mi. FID ensures that best bid/offer are considered as primary criteria when executing orders thus ensuring the best venue wins the execution. Implementation Date: November 1, 2007 Level 1 – Directive, adopted April 2004 Level 2 – Technical implementing measures, Released February 2006
Mi. FID – Challenges Facing the Industry Mi. FID Category Conflicts of interest Conduct of business Best Execution Post-trade equity transparency Investor classification Regulated market and MTF standards Passporting Rights Pre-trade equity transparency Challenge Resolving conflicts of interest and considering business practices and conduct all require firms to evaluate their processes, procedures and policies This can create a daunting challenge as investment firms need to consider, change and manage their processes with respect to Mi. FID. In addition, firms need to monitor trades and transactions to assure that no breaches of their fiduciary responsibility have occurred. Mantas provides a suite of control self assessment features that allows firms to automate the assessment, review and reporting of these critical policies, controls and procedures. This allows the client to spend more time conducting business rather than continually checking the state of their controls and procedures in order to satisfy the compliance requirements of Mi. FID. Mantas’ Control Room Package facilitates the monitoring process identifying potentially illicit trades. The challenges represented in these categories are considered the most difficult aspects of the Mi. FID requirement. From monitoring every transaction, to ensuring compliance with best execution rules, to providing an effective reporting and analysis framework, to the storage of five years of order, execution and market data, firms are struggling and in some cases resisting the Mi. FID requirement. Mantas provides a full range of automated transaction monitoring software specifically focused on the surveillance demands of Mi. FID. The Mantas Trading Compliance Solution is designed to meet the demanding Mi. FID requirements across the complete spectrum of trading exchanges in the European Union. Additionally, Mantas’ Financial Services Data Model provides comprehensive data storage capabilities, designed to meet the challenging data shortage requirement of Mi. FID with the ability to output all relevant transaction reports into the formats prescribed by the various regulatory and reporting organisations within the T+1 timeframe. Solution/Partner § Mantas Control Self Assessment § Mantas Control Room § Mantas PS Group (Implementation) § i-flex / Prime. Sourcing (Data Sourcing) § Mantas Trading Compliance Solution § Mantas Broker Surveillance Solution § Mantas PS Group (Implementation) § i-flex / Prime. Sourcing (Data Sourcing) Although Mi. FID rules are somewhat ambiguous, firms are increasingly seeking vendors and partners that can help decipher Mi. FID’s final and ultimate requirements while assembling practical approaches and software solutions that meet the Mi. FID requirement. § IBM Mantas as part of establishing the industries leading Trading Compliance solutions have collected decades worth of practical and valuable industry experience through its products, peoples and services and is uniquely positioned to assist firms implement a strong and practical approach to Mi. FID. § Accenture Mantas captures Order Book data as part of its underlying platform. This helps compliance organisations prove and investigate pre-trade transparency as part of on-going monitoring of best execution policy. § Mantas Trading Compliance Solution § Cap Gemini
Mantas Overview of Mantas MIFID Mantas Trading Compliance Solution Competitive Differentiation
Mantas Trading Compliance in the Market (Mi. FID) What is the solution ? - Mantas Trading Compliance Solution What does the Mantas Trading Compliance Solution consist of? - 1. Scenarios & Analytics (E. g: Best Execution) - 2. Applications (E. g: Control Room) - 3. Platform (E. g: Ingest, Detection Engines, Data Model & User Interface) Mantas Trading Compliance Overview: Mantas Platform supports the automated review of processes, policies & controls (Governance) while providing solutions for risk assessment, case investigation & management (Risk) Existing Mantas technology lends itself to key aspects of the directive, including best execution, trade transparency, conflicts of interest and best advice/customer suitability (Compliance) Best Execution Class – Evaluates the quality of individual order execution Proven & Deployed - Scenarios in this class examine prices and timing of orders and executions by comparing them to market conditions, and they generate alerts when customers did not get the best execution of their orders. Examples include: u Price Improvement Scenario u Price Disimprovement Scenario u Market Order Execution Untimeliness Scenario u Limit Order Execution Untimeliness Scenario u Unfilled Marketable Orders Scenario u Limit Order Display Scenario u Limit Order Protection Scenario
Mantas Trading Compliance in the Market (Mi. FID) Trading Compliance Class – Detects behaviors that violate regulatory and internal policies and procedures Examples include: u Indications that one or more parties arranged trading activity for their own benefit Cross Trading Listed Options and Futures Within A Narrow Time Window Scenario Parking to Conceal Fixed Income Position Scenario Parking Via Settlement Date Scenario Monitors trading activity to detect situations when traders exchanged, or acted on, advance information about their customers’ orders. u Trading Ahead of Customer Scenario u Front Running Large Orders Scenario u Front Running with Related Products Scenario
Mantas Trading Compliance in the Market (Mi. FID) Control Room Package – Detects behaviors that potentially indicate conflicts of interest and insider dealing/trading Examples Include: u Monitoring of trading activity against restricted securities (research, underwriting and primary market, book building, loans, credit derivatives) u Employee Trade Approval and Monitoring u Watch List and Restricted List Maintenance Customer Suitability – Identifies trades and portfolios that may be inappropriate given a customer’s profile Examples include: u Customers with unsuitable trades u Customers whose portfolios don’t match investment objectives u Portfolio Visualization and Analysis
Mantas Trading Compliance in the Market (Mi. FID) Mantas Trading Compliance Solution – Most widely adopted Trading Compliance Solution on the Market 2002 2003 2004 2005 2006
Mantas Overview of Mantas MIFID Mantas Trading Compliance Solution Competitive Differentiation
Functional Comparison: Mantas offers cross enterprise Compliance and Operational Risk Management. Mantas wins when client understand this cross enterprise exposure challenge. AML Trading Compliance Broker Compliance Mantas Actimize Retail Brokerage Retail Banking Institutional Brokerage Capital Markets Correspondent Banking Searchspace SAS Norkom Net. Economy Private Banking Insurance Foreign Exchange Fixed Income Equities Derivatives Best Execution Employee Surveillance Supervision Suitability