IBM Acquiring Promontory Financial Group, Creating ‘Watson Financial Services’

“Robo advisors” are a hot topic in the financial advisory business these days. These software applications use advanced analytics to provide investors with “objective” advice that is based purely on data and trends. What’s more, they can be programmed to automatically allocate, deploy and rebalance investments.

Robo advisors are a form of artificial intelligence and, thus, have numerous advantages over human advisors. For one thing, they always give the same advice regardless of which customers they are dealing with – so there is a consistency factor that is attractive from a consumer and regulatory standpoint. They also never get sick, take vacations or complain about long hours – thus, they present new operational efficiencies for investment firms.

Some people fear that robo advisors will eventually replace human advisors; however, that is likely many years off. What is interesting, however, is how computing and analytics are being used to create new types of “robo advisors,” including machines that can advise business executives on how to improve operations, including managing risk.

In what could become a major step forward in the application of artificial intelligence to risk management, IBM has announced that it is acquiring regulatory compliance consulting firm Promontory Financial Group and will be combining the expertise of Promontory’s 600 professionals with the cognitive capabilities of Watson, a technology platform that uses natural language processing and machine learning to reveal insights from large amounts of unstructured data.

“What Watson is doing to transform oncology by working with the world’s leading oncologists we will now do for regulation, risk and compliance,” said Bridget van Kralingen, senior vice president of IBM Industry Platforms, in a release. “Promontory’s experts are unsurpassed in this field. They will teach Watson, and Watson, in turn, will extend and enhance their expertise. This initial offering of Watson Financial Services is emblematic of the transformative cloud-based solutions that IBM Industry Platforms will bring to clients.”

By combining the capabilities of Promontory with Watson’s advanced artificial intelligence, IBM hopes it can help financial institutions – including mortgage companies – address the costs and challenges of increasing regulation.

Promontory, which came to rise following the 2008 financial crisis, has become well known for its expertise and offerings in the area of regulatory compliance.

However, as IBM points out in its release, keeping on top of all of the new regulations, and their related impacts, has become an overwhelming job. More than 20,000 new regulatory requirements were created last year alone, and the complete catalog of regulations is projected to exceed 300 million pages by 2020, rapidly outstripping the capacity of humans to keep up. Today, the cost of managing the regulatory environment represents more than 10% of all operational spending of major banks – a total of $270 billion per year.

IBM says Watson’s cognitive capabilities are ideally suited for helping financial institutions absorb regulatory changes and understand the impacts. Combined with human expertise, it can help organizations address compliance requirements more quickly and efficiently.

Following the acquisition, the terms of which were not divulged, Promontory’s professionals will train Watson, which will learn by continuously ingesting regulatory information as it is created and through interaction in real-world applications.

“We believe the future of business and regulation will be driven by the need for advanced technology, alongside deep subject matter expertise,” said Eugene Ludwig, founder and CEO of Promontory. “Combining Promontory’s expertise with IBM’s extraordinary technological capabilities such as Watson will permit us to directly address our clients’ greatest challenges in innovative and powerful ways. It will enhance our mutual commitment to risk management and regulatory compliance excellence, and our results will benefit customers and the overall financial system.”

After the deal is completed, Promontory, which is headquartered in Washington, D.C., and has 19 offices in North America, Europe, Asia, Australia and the Middle East, will operate as a wholly owned subsidiary of IBM.


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