To strengthen its risk management strategy, RiskScreen turned to Formula One racing, an industry that has mastered the ability to anticipate outcomes. Emily Moore reports
FASTER, higher, stronger – together. A motto immediately familiar to any fans of the Olympics, these words – amended in 2001 from the ‘swifter, higher, stronger’ mantra adopted by the International Olympics Committee in 1894 – are just as apt when it comes to summarising the ambitions of most sportspeople, teams and businesses.
But competition and that desire to outperform the opposition is not the only factor shared by the worlds of sport and commerce.
Inherent in every endeavour is risk, and it is this four-letter word which explains why one Jersey-based regtech business has recently appointed a former Formula One strategist as an adviser to its board.
‘I have always been fascinated by what the financial services industry can learn from other industries about how to manage risk effectively,’ explained RiskScreen founder and chief executive Stephen Platt. ‘Some time ago, I was lucky enough to gain exposure to the aviation industry and to get an insight into how it manages risk super-effectively while being under constant pressure to perform commercially.
‘Similarly, the world of Formula One is probably the best example of an industry which deals with, and manages, risk super-effectively at the same time as outperforming both in terms of speed and delivering commercially. And it was that which led me to Neil.’
Having spent three decades working with McLaren Racing, Red Bull Racing and Ferrari, Neil Martin is certainly no stranger to the concept of risk but he recalls the surprise he experienced when he first stepped into the world of international racing.
‘When I left university with a masters in operational research and joined McLaren Racing, I started, somewhat naively, applying the techniques I’d learnt at university and was surprised that the team wasn’t already doing those things,’ he reflected. ‘I thought they were humouring me but, while Formula One is now at the cutting edge of manipulating data and analytics, at the time the approach was very much “learn as we go”.
‘There was an old-school way of thinking that there were too many unknowns and that several of the problems were too complicated to solve and so the team would just run the race and see what happened. However, through optimisation and risk management training, you can lean into those unknowns and predict what may happen and the likely outcomes. By leaning into those unknowns, you are then better prepared for those outcomes and can manipulate the race to gain a competitive advantage.’
By applying that approach, Neil said, the team began to outperform its competitors.
‘As we started modelling scenarios and getting rid of false positives, we started to find answers more quickly and execute strategies faster, which gave us a competitive advantage,’ he said.
‘While there will still a lot of unknowns, particularly when it came to competitors’ cars, by studying factors such as lap times, sector times, top speeds, overtaking probabilities and the likelihood of tyre degradation, we were able to assess, and control, our appetite for risk.’
Perhaps unsurprisingly given the results that this method delivered on the race track, it was not long before this analytical, data-driven approach become an important sub-sector of Formula One.
‘The competitive advantages were clear but motorsport is a highly regulated area,’ said Neil. ‘Therefore, the more regulation you have to comply with, the more innovative you have to become to maintain that competitive advantage.’
Of course, it is not only Formula One which has to operate in a tightly regulated environment, and with Know Your Customer and anti-money-laundering legislation becoming ever more stringent – and the risks associated with these areas having the potential to ruin a business – further parallels can be drawn between the worlds of sport and finance.
‘There are a lot of unknowns in finance as well and a lot of detective work is required to achieve that competitive advantage,’ said Neil. ‘You have to ask, if we do business with X or Y, is that a good match for our firm? You have to look inside the problem to identify, and then lean into, the risk.’
One of the key challenges facing the finance industry is crime prevention, something which Stephen maintains is best rooted out through a thorough onboarding process.
‘Somewhat unusually for a regtech business, my background is not in technology but in law, where I specialised in financial crime prevention for almost 30 years,’ he said. ‘Having focused on the people and process sides of this area, I then started thinking about the third leg of the stool – technology – and how these three elements could come together to support businesses.
‘I then took this knowledge and expertise to design technology, starting with screening technology and then building perpetual KYC solutions and remote customer onboarding technologies, so that we now have a platform enterprise software solution which helps businesses not just with that initial onboarding but with screening throughout the customer relationship.’
Having launched RiskScreen six and a half years ago, the business has grown quickly, with more than 1,000 organisations around the world, including regulators and law enforcement agencies, using its technology.
‘I think RiskScreen is an amazing success story for Jersey because its growth wouldn’t have been possible without the Island’s commitment to the fight against financial crime,’ Stephen reflected. ‘The fact that we now export financial crime prevention technology to the rest of the world is a great news story for the Island.’
But while there is a widespread recognition of the need to address financial crime, Stephen says that understanding of the role that technology can play in that fight is still at a ‘relatively early stage’.
‘There is still a huge amount of waste within the industry and a belief that you need to recruit more and more people to compliance roles,’ he reflected. ‘The problem with that approach is that it materially increases the risk of human error. While technology can’t do the whole job, it can do a lot and, by using technology, people can focus on the areas which add real value.’
Explaining why he is keen to draw on Neil’s experience to ‘further differentiate RiskScreen’s offer’, Stephen added: ‘From a strategic point of view, Neil’s learnings from Formula One are invaluable. What he, and the entire Formula One industry, has come to terms with is that you don’t manage risk just to tick a box. Instead, you manage risk to outperform.
‘Traditionally, the financial services industry has had a negative view of risk management, with the view being that “if we don’t do this, bad stuff will happen”. As a result, the tick-box attitude remains and businesses do what is necessary and hope for the best.
‘However, if you embrace that risk, it’s a win-win because you manage that risk more effectively and move ahead commercially. As an example, our remote customer onboarding technology not only allows you to do business with new customers in a more compliant way but also allows you to onboard them more rapidly, enabling you to bear down on risk more effectively and gain new business more quickly. It’s a virtuous circle and it takes a mature industry to recognise the benefits that flow from that circle.’
While helping firms to onboard new clients, perhaps even more critically, the technology can also, Stephen says, identify ‘the bad actors’.
‘We live in a very uncertain and dangerous world, and the landscape in which financial services firms operate is very complicated,’ he said. ‘There are lots of bad actors, from bad state actors to crime gangs, drug cartels and those funding terrorism or human trafficking. Against this backdrop, it is vital that firms do not facilitate crimes or launder the proceeds of crimes.
‘Of course, the people posing these risks are highly innovative and the techniques used by terrorists and organised crime gangs are highly sophisticated and extremely well resourced, with new methodologies emerging all the time. As a result, we have to ensure that our technology takes all of these factors into account and keeps on evolving.’
‘The reality is that we have to be as extreme as we can be because, if we’re not, our competitors will be,’ added Neil. ‘Safety cannot be a tick-box exercise. You have to understand the anatomy of a situation, see the likely outcome and put a fix in place.
‘In Formula One, the best example of this is the halo above the drivers’ heads. The data said that this was needed but the drivers hated it and resisted its implementation. Within two years, though, it had saved Charles Leclerc and Romain Grosjean. By leaning into the risk, we saved lives.
‘In the financial services risk arena, it’s not a case of looking at what risks we can measure. It’s about going beyond the expectations to take that distraction away from businesses and provide a seamless solution for customers.’
‘This is a brilliant analogy,’ added Stephen, ‘because we are constantly analysing events and disasters within the financial services industry and undertaking post-mortems on the causal factors, which we then run seminars and write papers about. Those factors are then taken into account when we design our technologies.
‘Critically, there is a remarkable level of commonality in the causal factors of AML and financial-crime disasters. It’s almost as if the industry is not very good at demonstrating collective memory because it makes the same mistakes over and over again.
‘Firms fall into the trap of spending a huge amount of time, energy and money on KYC processes for the lowest-risk customers, often at the expense of really getting to know their highest-risk customers. One reason for this is that the highest-risk customers are often the most valuable and therefore the ones who they least want to inconvenience by asking difficult questions. The flipside of that, though, is that these are the customers who could bring down their business. It is therefore vital that you know them in a way which is genuinely risk-based.’
Despite identifying some weaknesses within the industry, Stephen believes that the Island is in ‘a strong position’ as it prepares for this year’s Moneyval inspection.
‘As an island, we have consistently demonstrated a real commitment to the global fight against financial crime,’ he said. ‘For a long time, Jersey has been in a leadership position, showing a willingness to lean in and embrace this challenge and risk. With a lot of hard work having gone into legislation, regulation, prosecutions and the newly meted independence of the Financial Intelligence Unit, we are in a strong position and should be cautiously optimistic about the Moneyval inspection.
‘While there will only ever be so much financial crime that can take place in Jersey, our role as a sharer of intelligence with other jurisdictions is very important and that is a role which I think the changes to the Financial Intelligence Unit will enable us to play even more effectively.’
