Elucidate is a Berlin-based RegTech providing financial crime risk quantification to help financial institutions to score and predict financial crime risk through the Elucidate FinCrime Index platform (“EFI”).
What issues have you addressed in the market, and how does the EFI address them?
Shane (S): As with many startups, the genesis of Elucidate was frustration with the status quo. We have first-hand experience of the challenges faced by financial institutions struggling to manage financial crime risk, and were determined to create a mechanism to enable clear quantification and, eventually, prediction of financial crime using data analytics and machine learning.
Filipe (F): Just like ATMs that came to help bank tellers, we aim to automate the operations around FinCrime. We don’t see this as a replacement tool but instead an enabler one. People have been spending their time doing repetitive tasks without many gains and the EFI allows them to focus on the pain points.
Shane, how do you evaluate the company’s evolution since its inception in 2018?
As a RegTech, development of a credible and robust product takes time, requiring extensive testing and validation. Since formation we have successfully built the EFI and subjected it to external review and scrutiny, including by several of the world’s leading regulators. Our initial launch coincided with the 2019 Sibos and has attracted significant industry attention, which is gratifying. I would also say that our ability to have performed assessments of over 2.500 banks has exceeded our expectations.
Filipe, you work alongside a team of technology specialists in order to build the EFI. Could you guide us through the development of the platform over the past year?
We set out to build a system from scratch that would enable our clients to quantify financial crime and showcase results. Firstly, we started by focusing on the training and core competencies of our team. We use a Continuous Integration and Continuous Testing system as it enables us to be fast and lean in terms of technology development.
The number of RegTechs in the market is increasing. What are the challenges Elucidate is facing now? What are the priorities and objectives for 2020?
S: The multitude of financial crime-related scandals, mishaps and fines in 2019 have amplified expectations from regulators and the public more generally for banks to continue to enhance their ability to manage evolving FinCrime risks. This creates an opportunity for Elucidate insofar as an increased appetite for more detailed risk quantification is emerging from within the most senior ranks of banks. Additionally, banks are under increased pressure around costs, making the EFI’s efficiencies and enhancements even more attractive. 2020 will be about leveraging these market dynamics to drive the EFI’s industry adoption and developing a standard industry baseline.
F: On the technology side, from the beginning we had two key principles: the EFI platform had to be scalable and accurate. The requirement for scalability means that we must automate as many steps as possible. The requirement for accuracy means that we must operate in a traceable, explainable, and an auditable manner. As we grow, those two principles must continue to guide our work.
Shane, you held senior roles at multiple Tier 1 banks before founding Elucidate. In your view, what needs to change in correspondent banking?
In general, correspondent banking is a very mature product offering, and banks are severely restricted on flexibility due to market conditions and regulatory restrictions. As this is unlikely to change, and given that banks are at increasing risk of disintermediation from FinTechs and PSPs, one way in which banks can reduce costs is by managing FinCrime risk with greater efficiency and effectiveness. The alternative of either staying flat on risk management performance or increasing costs will risk placing the banks in an untenable commercial position.
Now a personal question: How long does it take to make a final decision between you two? How often do you disagree?
F: Since we are a technology company, but business is the one driving the requirements, it’s always good to bring both points of view to the table. Since we have very different backgrounds we often disagree, but always find the best solution to the company.
S: Agree. We wanted to build a tech company that would focus on financial crime, and having strong views from the commercial and engineering perspectives is essential to achieving the best possible outcome.