IBM-Promontory deal to put Watson to work
International Business Machines Corp. plans to purchase consultancy Promontory Financial Group LLC, the two companies announced Thursday, creating a new IBM offering called Watson Financial Services.
The companies didn’t disclose financial details of the acquisition, a deal they said is subject to regulatory approvals and expected to close by the end of the year.
The idea, they said, is to combine Promontory’s financial regulatory expertise with Watson, IBM’s artificial intelligence computer system, to help banks meet ever-rising regulatory expectations in areas such as anti-money-laundering detection systems, consumer complaint databases and so-called stress tests.
Financial regulatory requirements are “rapidly outstripping the capacity of humans to keep up,” a joint news release from the companies said.
Privately held Promontory was founded in 2001 by Eugene Ludwig, a former U.S. comptroller of the currency, and has hired a small army of former senior regulators and government officials to advise financial firms. It now has about 600 full-time employees and 19 offices, 14 outside the U.S. Promontory will keep its name and will become an IBM subsidiary.
Banks and government agencies use Promontory as an adviser, but also as a sort of outsourced regulator, which sometimes performs jobs the government doesn’t have the resources to do. For example, regulators might hire Promontory to monitor a financial firm’s compliance with the terms of a settlement.
Last year Promontory briefly explored a sale to Boston Consulting Group, according to a person briefed on the matter, but both sides walked away.
In an interview, Ludwig said discussions with IBM had been going on for about the past six months.
“To get (regulatory compliance) right for large institutions takes tremendous computing power, but it also takes domain expertise” that Promontory has in the regulatory space, he said.
Watson Financial Services will be part of IBM’s Industry Platforms unit, IBM senior vice president Bridget van Kralingen said. IBM has run technology systems for financial institutions for decades, but the acquisition announced Thursday represents a new foray into regulatory compliance work.
Van Kralingen said the increasingly data-driven world of financial regulation was a logical expansion of the Watson cognitive computing technology, which the company is also applying in cancer research and other areas.
“There is no way that professionals can keep up with critical information growing at these rates,” she said in an interview. “Watson is going to learn ... by continuously ingesting this regulatory information as it is created.”
One area where the companies expect Watson to help financial firms is in anti-money-laundering compliance. Banks are expected to track millions of customers and financial transactions, looking for suspicious activity and reporting it to the government. If they miss activity such as terrorism financing or sanctions evasion, they can face multimillion-dollar or even billion-dollar fines.
Promontory’s experts and IBM’s Watson team are looking to create a smarter system for catching suspicious transactions and customers, which then could be sold to banks, the two executives said in the interview.