FundTech and KYC challenge was the main topics discussed during the first afternoon of the Fintech Summit, moderated by Nadia Manzari, Lawyer and Partner, SCHILTZ & SCHILTZ.
“FundTech: Luxembourg is forging a recognised FinTech sector to go with its well-established status as fund distribution centre” was the theme of the first afternoon session .
Manzari is amazed by the journey made by the Luxembourg financial industry during the last 20 years and she's delighted that Luxembourg has always remained at the forefront of innovation. "We are working on frameworks for crowdfunding, digital assets, virtual currencies, AI based financial products. Everything is moving on and there still a lot to do.”
Pascal Bouvier, Co-founder & Managing Partner, MiddleGame Ventures (fintech VC fund) then took the stage for a keynote entitled “A brave new world of digital assets”.
“There is in some cases an evolution and in other cases a revolution in the way assets will be represented in the future. We defined it as the next frontier of assets being digital assets.” The flamboyant entrepreneur clarified his thought: “Assets will be represented once they are issued in different ways than today, mostly tokenized, mostly on distributed ledger, mostly with some cryptography, and mostly, on top of all these attributes, with certain lines of code that will be embedded in that token that represents this asset and that will define certain actions once the asset is issued.”
But concretely, what will be the consequences of such a (r)evolution? “All the assets from any market will be issued in a different way than today. There will be represented by tokens on distributed ledger. They won’t be setting in a central database.” And this (r)evolution will impact investors, legal professions, all third parties (investment bankers, brokers, compliance people, regulators), data analytics, indexing, credit, rating, indices, fund services, fund accounting… The list is not exhaustive.
A fireside chat entitled "How to foster innovation to contribute to the future of the financial sector?" then brought together Karen O’Sullivan, Head of the Innovation, Payments, Market Infrastructures and Governance Department, CSSF (Commission de surveillance du Secteur Financier, Luxembourg), and Vishal Sacheendran, Manager, Capital Markets Authorisation, Financial Services Regulatory Authority, live from Abu Dhabi.
According to Karen O’Sullivan, to face the challenges brought by innovation, “the key is an open and transparent dialogue with everyone involved. We have to work with industry groups, incubators, financial innovators promoters. The quicker we can exchange, the quicker we can achieve a result that fit both sides.”
Vishal Sacheendran couldn't agree more: “We have to lead a dialog with the market, with all stakeholders, with people affected by various technologies, with other regulators around the globe. I don’t want to use the term “fintech” anymore. It is financial services. It is the world that we created. With pandemic, the level of digital adoptions across the region (Middle East) is phenomenal. People use to rely on fiat money, on cash. The culture of online payments, of e-commerce was quite inexistant.”
The organizers then welcomed Nasir Zubairi, CEO, the LHoFT (Luxembourg House of Finacial Technology), who was supposed to focus on “Understanding the new value chain of the fund in the asset management”.
But instead, the CEO adopted a serious tone to draw up a rather pessimistic inventory of the asset management industry: “The European finance industry and the banking sector is the worst performing sector in the world, behind Japan, behind USA.”
“Are we basically looking at an industry that is in decline overall?”, asked Nasir Zubairi to challenge the audience. “When I left university, everyone, included myself, dreamed to work in a bank. Nowadays, graduates want to work for big tech companies, Google, Amazon.”
So, what is the solution to face the revenues’ decline and the costs’ rise? The answer is in a nutshell: “Technology.” But Nasir Zubairi found another ground for concern: the slowness to adopt new technologies. “It takes 3 years for banks to implement new technology and get it to the market. Why don't financial institutions look at new technologies as part of their strategic ambitions? Why technologies are seen as an enabler as opposed to a core strategic pillar? Why do we have any fund or any service provider that are providing access to bitcoin for example?”
All these "why" led Nasir Zubairi to denounce resistance to change. According to him, despite the emergence of FinTech over the past ten years, the fund industry has not changed much.
After Nasir Zubairi, Jesus Pena Garcia, Senior Manager, Technology Strategy and Transformation, Deloitte, delivered a keynote speech about “How Luxembourg can become Europe’s Tokenization Hub”.
Pena Garcia followed in Bouvier's footsteps at the beginning of his speech: “Everything can be tokenized on a distributed ledger.” The business opportunities are real. In 2020, the market size for digital assets in Europe was 114 EUR billion. In 2026, it should reach 1.821 billion. Luxembourg has certain assets to make use of in order to exist in this market: its well-established financial industry, its capabilities to attract key technology providers, its small size that makes possible fast decisions and fast adoption of new regulations.
But Luxembourg needs mainly “to continue to invest in technology and to bring actors of the industry all together to collaborate around the future infrastructure”.
Paolo Brignardello, Chief Commercial Officer, FundsDLT, Nicolas Gerard, Managing Director – Head of EMEA Regulatory Reporting Products, State Street Bank Luxembourg, Bert Boerman, CEO, Governance.com, Revel Wood, Founding Partner, ONE group solutions, and Daniele Calderai, Business Development Manger, LHoFT, then participated in a round table entitled “FindTech & Investments by the LHoFT” (Luxembourg Hub of Financial Technology).
The panel discussed about the future relations between the FundTech and the larger industry, a topic at the heart of the LHoFT agenda for years.
“The key solution to face challenges and provide practical solutions is the collaboration between the different actors, bringing together the traditional industry and the world of start-ups”, stated Daniele Calderai, a strategy everyone agrees on.
The implementation of Fintech innovations in large and traditional institutions remains a difficult process, explained Boerman. “It’s hard for a large company to connect a single innovation to a wider transformation roadmap.” A finding that has achieved consensus around the table.
Among the paint points highlighted by the panel, we can quote the complexity of documents’ management and the fund distribution inefficiency.
One of the answers to face these challenges is the blockchain technology. “The planets are being aligned” for a wider implementation of this technology in the fund industry, said Brignardello, who made the same observation than Boerman : “The adoption of new tech is hard.”
“Data as an Asset; shifting paradigms through a FinTech Optic” was the name of the keynote speech delivered by Lionel Nicolas, Asset Servicing Leader, PwC Luxembourg, and Benjamin Gauthier, Partner, PwC Luxembourg.
“Why such a low penetration rate of FinTech solutions to date?”, asked Nicolas. “Technology innovation is alive and kicking in Luxembourg but big company multi-layered and complicated decision-making results in the classic definition of a camel, a horse designed by a committee.”
Both of the speakers had a message: “Don’t be afraid of partnering with other FinTechs and deliver a combined solution through a single portal.” They pleaded for greater autonomy for Luxembourg based businesses, taking the example of the quick adaptation during the pandemic with minimal interference from Parents companies.
Then it was Beltran Fiz's (photo) (CEO, digitalUs) turn to take the stage for a keynote speech about “Open Source Intelligence for KYC & AML”.
Fiz provided a holistic view of the customers’ public digital footprint. He started with a definition of open source intelligence: “Actionable intelligence produced from publicly available information.”
Fiz then went through the process called KYS for Know your Customer: he went to find information about him available online. Starting with his name and photo, he first looked for information on Google, then on Linkedin. From the information obtained, he was able to navigate to websites from his company and former employers containing new information. After being able to find some of his publications, articles, it is possible to identify some of his colleagues and associates. With the source code of his website, we are able to know his username on many platforms. “Once you identify user name, you start opening a wealth of data".
But so far, this is only the tip of the iceberg: we can find more information on social media, with the business register of his company.
It's a real chain reaction. Once his address has been obtained and his date and place of birth, it is for example possible to identify members of his family.
The amount of information obtained with Open Source Intelligence is quite impressive. OSI is used by cybersecurity agents and more recently by law enforcement and financial anlaysts. OSI is included in the guideline for monetary laundry of the European Bank Association and its Financial Action Task Force. To help to process OSI, technologies such as AI are used to avoid a difficult and long manual research. “Another challenge is to identify what information is relevant.”
A round table discussion on “AML/KYC digitalization challenges & opportunities” then brought together Glenn Meyer, Lawyer, Partner, Arendt & Medernach, Pascal Bughin, Chief Operations & Compliance Officer, La Mondiale Europartner, and Max Braun, Head of FIU Luxembourg (Financial Intelligence Unit). It was moderated by Raoul Mulheims, Co-founder & CEO, Finologee.
In 2020, the 5th AML (anti-money laundering) applied in the Luxembourg law, increasing complexity of AML due diligence and tax compliance, according to all members of the panel.
Bughin noted the difficulties in accessing public data: “For example, access to German or French registers is partial.” Digitization is a tool for better data collection. As Glenn Meyer pointed out, all authorities embraced digitalization, allowing them to skip the easy tasks and focus on the more complex analysis, on the tasks the machine can’t do.
From a regulator perspective, Braun recognized that the FIU is dependent on the quality of the information received from the private sector. However, beyond the raw data, Braun appealed to the "common sense" of financial institutions: “You have to look on the whole client relation. It is possible to see that a source of income is outside the box.”
Fernand Lepage, Director KYC Office, BGL BNP PARIBAS, and Pascal Morosini, CEO, I-hub S.A, then focused on “The growing interest towards a centralized KYC ongoing due diligence process outsourcing relying on the secured client data mutualization”.
Lepage explained why BGL BNP Paribas has outsourced the management of its KYC. “We have growing regulatory changes, we need data automation. When we chose I-hub, we only outsourced data. We need the freshest possible data and the most reliable and it’s not our core business. Our core business is to analyze data and data’s risks.”
The choice of I-hub was more a question of trust than a question of security. “I-hub has the CSSF accreditation and is in Luxembourg, so, it’s close to us. The data stay in Luxembourg.”
Other Luxembourg banks are using I-hub for KYC. Client allows data sharing between the banks. Thanks to this mutualization, the client put his data one time in a centralized place and don’t have to do it several times for each bank.
But what about competition between the banks? “We don’t compete on KYC”, concluded Page.
The first day of the FinTech Summit ended with Frédéric Becker, Project Manager, Luxembourg Ministry of the Economy. He talked about how Luxembourg government connect with startuppers worldwide. Vaanathi Mohanakrishnan, Business Head, MENA, M2P Solutions, and Emaad Shirazie, Product Management Specialist, Codebase Technologies, presented their company.
“Luxembourg Trade & Investment Offices are spread all over the world with two main goals: helping Luxembourg entrepreneurs abroad and connecting foreign entrepreneurs with the Grand Duchy”, said Frédéric Becker. He then introduced two startups from Dubai and Abu Dhabi.
Live from Dubai, Emaad Shirazie presented his startup, Codebase Technologies, a global open API banking innovator which enables banks, financial institutions, and emerging FinTechs to demystify digital financial services.
Live from Abu Dhabi, Vaanathi Mohanakrishnan then took over to present M2P Solutions, a startup that enable every business to be a provider of financial services by partnering with licensed financial institutions.
Article by Nicolas Klein (Photos Dominique Gaul)
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Publié le 20 septembre 2021