Transforming Laws, Regulations and Policies into Ontologies and Business Rules: A Real Life PoC with Regulation-W (Reg-w) June 26, 2014 1 1 1.

Transforming Laws, Regulations and Policies into Ontologies and Business Rules: A Real Life PoC with Regulation-W (Reg-w) June 26, 2014 1 1 1

Background The 2013 FIBO Technology Summit Challenge: There is a need to convert requirements (e.g. regulatory rules) into executable semantic rule statements. We need an efficient mechanism to turn government regulations into a standards based rules language. Are tools such as the Rules Interchange Framework (RIF) Rulelog dialect and the Web Ontology Language (OWL) sufficient? Reg-W was chosen as a PoC and successfully demonstrated Copyright © 2014 EDM Council Inc.

Presenters David Newman Strategic Planning Manager, Senior Vice President, Wells Fargo and Chair, EDM Council Semantic Technology Program Wesley Moore MD, Compliance Controls and Infrastructure, Wells Fargo Securities Dr. Elie Abi-Lahoud Research Fellow, GRC Technology Centre, University College Cork Dr. Grit Denker Senior Computer Scientist, SRI International Benjamin Grosof Co-Founder, Coherent Knowledge Systems Copyright © 2014 EDM Council Inc.

Reg-W POC Goals and Methodology
Mission: Demonstrate how semantic technologies (using FIBO/OWL and FLORA2/ Rulelog) can define and execute regulatory compliance rules using open data standards and automation Goal: Identify entities as Reg-W Affiliates Identify Reg-W Covered Transactions Identify Reg-W Prohibited Transactions Display logic used that describes how Reg-W compliance is achieved Participants: Wells Fargo – POC leadership, subject matter expertise and sample test data GRC Technology Centre - Methodology to interpret regulation SRI – Sunflower platform and technical expertise Coherent Knowledge Systems – Episto platform and technical expertise Methodology: Incorporate FIBO Business Entities ontology into execution platforms Ingest Reg-W test cases spreadsheet Perform Reg-W rules execution to automatically determine compliance Execute audit trail queries that prove how compliance is achieved

Compliance and Regulation W
Wesley Moore MD, Compliance Controls and Infrastructure Wells Fargo Securities Copyright © 2014 EDM Council Inc.

What Compliance Does Comprehensively describe how rules apply and how our businesses comply: Policies and procedures, rule interpretation Communication of standards, Training Day-to day consultation, strategy development Decision rationale Audits and regulatory exam management Internal compliance control reviews Surveillance and monitoring Compliance Program documentation Find regulatory and policy compliance problems Oversight and controls Attestations and evaluations Exception resolution Program sufficiency and maintenance Issues research and management Help correct regulatory and policy non-compliance Investigations Project support Validation Escalation Describe Find Help Correct . . . Regulatory and Policy Non-Compliance Wes Copyright © 2014 EDM Council Inc.

Regulation W The Federal Reserve Board’s (“FRB”) Regulation W (Transactions Between Member Banks and their Affiliates) implements Sections 23A and 23B of the Federal Reserve Act (“FRA”). Protects the financial integrity of banks: Bank affiliate includes any company that controls the bank, any company under common control with the bank, and certain investment funds that are advised by the bank or an affiliate of the bank. Limits covered transactions with affiliates that are not subsidiaries of banks (Reg W affiliates). Imposing collateral requirements on extensions of credit Prohibiting the purchase of low-quality assets by banks from their Reg W affiliates or sister banks Limits: Covered transactions with an affiliate cannot exceed 10 percent of a bank's capital stock and surplus, and transactions with all affiliates combined cannot exceed 20 percent of the bank's capital stock and surplus. Wes Copyright © 2014 EDM Council Inc.

Covered Transactions and Exemptions
Type of Covered Transaction Asset Purchase from an Affiliate Purchase of, or an investment in securities issued by an affiliate Attribution Rule - via extension of credit Extension of Credit Exemptions Intraday Credit to Affiliates Riskless Principal Transactions Municipal securities purchases Transactions secured by cash or U.S. gov’t securities Purchasing assets, other than securities issued by affiliates, that have ready, liquid markets. Wes Copyright © 2014 EDM Council Inc.

Expected Benefits to Compliance Performance
Compliance Duty Expected performance benefit Identifying and reporting covered transactions Linking technology specifications to rule logic improves accuracy and accountability Ensuring adequate collateral for credit transactions Clarity of rules leads to more accurate analysis and efficient capital usage Request the appropriate allocations of capital and/or collateral for any covered transaction Improve understanding, reduce drama and time in managing remediation of errors. Maintaining documentation needed to certify Regulation W compliance Audit trail from regs to specs to results to actions. Real time info. Retain institutional knowledge. Reporting the daily commitment balance of all covered transactions for the business group Automation of daily manual research and input Developing and performing testing to ensure Regulation W compliance Validated logic and continuous monitoring replaces manual detective controls Train team members Improved preventative controls. Consistency in message. Improved feedback loop Wes Copyright © 2014 EDM Council Inc.

Main Concepts in Regulation W
1) Is counterparty an Affiliate ? 2) Is transaction Covered? 3) Is Amount permitted? Counterparty Bank Objective of this PoC: Am I in compliance with RegW? Yes/No Why? / Why not? Start with understanding Reg W Elie - On from Wes’s slides – summary of regW – 30 seconds Copyright © GRCTC- UCC

Challenges in understanding Regulation W
Unstructured Text size Federal Reserve System Final Rule 12 CFR Part pages of text in natural language Summary: 19 pages (comprehensive review) Definitions to identify, delimit and flesh out Complex sentences: Legalese and NL ambiguities Exceptions/ exemptions Elie – 1.5 mins – (Elie’s total 2mins up to here) Reference chains Copyright © GRCTC- UCC

Current Techniques SMEs (both Business and Legal)
Link to regulation (unreliable, difficult to maintain, hard to navigate) Arbitrary categories, lack structure and accurate definitions SME’s understanding of the regulation Traceability? Reusability? Can share? SMEs (both Business and Legal) Handcraft guidance Partial Coverage often limited to recurrent activities Based on non-documented/ non-formalised process Accuracy, Thoroughness, Diligence at the discretion of the SMEs Lacks transparency, disconnected… reusability? More problems when the rule is complex Lack of structure i.e. vocabulary of transaction types, exemptions, collaterals, etc. Link to other regulations, new spreadsheets? Elie – 2 mins (Elie’s total 4mins up to here) Copyright © GRCTC- UCC

Use Structured Natural Language
Following GRCTC methodology to interpret regulation in SBVR SBVR OMG Specification for business Vocabularies and Rules Vocabulary: Captures the business domain Terms referring to business concepts, links/relationships between concepts, definitional constraints on these relationships Rules: Capture the business behavioural constraints Obligations, prohibitions, etc. Elie – 30 seconds - (Elie’s total 4.5mins up to here) Copyright © GRCTC- UCC

GRCTC methodology to interpret regulation in SBVR
Follow reference chains and produce self-contained sentences Define terms iteratively until all confusions are clarified Regulations & related documents Capture regulatory requirements using the interlinked vocabulary elements Identify, Describe and Constrain links between terms Elie – 30 seconds (Elie’s total 5mins up to here) Clear, consolidated and transparent articulation of Regulatory requirements Copyright © GRCTC- UCC

Limiting PoC Scope using SBVR SE
Each is defined Body Corporate Source: CFR II § 223.2 FIBO Concept Elie - 1min (Elie’s total 6 mins up to here) Copyright © GRCTC- UCC

Benefits of this Approach
Elie Abi-Lahoud, Leona O’Brien, Tom Butler (2013) “On the Road to Regulatory Ontologies: Interpreting Regulation with SBVR”, AICOL, Bologna, Italy, Dec. 2013 Elie – 50 seconds (Elie’s total 10 mins up to here) - To deliver more: tool support, move beyond SBVR SE to “executable SBVR”? Copyright © GRCTC- UCC

Presentation Demonstration
Advanced Compliance Controls: Controls Automation Using Sunflower Dr. Grit Denker Senior Computer Scientist SRI International Copyright © 2014 SRI International

Approach Overview A software solution called Sunflower implementing compliance programs running on your hardware machine reasoning over government regulations and your data captured in machine-understandable representation Compliance, Business and IT Regulations, related laws, P&Ps, etc. Monitoring & surveillance reports Create Implement Execute/Audit Understand and formalize regulation Create policies Identify relevant data Implement controls and analytics Validate and share across enterprise Automated data ingestion Check results of automated analysis Escalate and act Defend to auditors Supports Compliance Program Lifecycle Production data from IT systems, spread sheets, databases etc. 26 Copyright © 2014 SRI International

Reg-W Covered Transaction Scenarios
Spreadsheet with 17 Reg-W scenarios Copyright © 2014 SRI International

Reg-W Rule Development
Translate each row into a formal, machine-readable Flora-2 rule Copyright © 2014 SRI International

Transaction Trade Data
Automatic ingestion of production data into Sunflower Spreadsheet importer SQL database importer Copyright © 2014 SRI International

Sunflower Overview Textual view of rules, ontologies and KBs (Flora-2) List of loaded projects and ontologies and Knowledge Bases (KBs) Various integrated views (e.g., ontology and knowledge browser and editor, graphical views of rule dependencies and KBs, test queries and results) Current tool interfaces are for people with some training in semantic technologies. End-user interfaces will be provided according to needs Copyright © 2014 SRI International

Translating FIBO to Flora-2
FIBO OWL ontologies and SWRL Rules translated (within seconds) into Flora. Copyright © 2014 SRI International

Reg-W Transaction (in Ontology Editor)
Transaction instances These transaction instances were automatically generated using Sunflower’s spreadsheet ingestion tool Note that the individual transactions do not have permitted, reportable, or reportableReason values (because those will be inferred). Copyright © 2014 SRI International

Which Transactions are Permitted or Reportable?
This test query applies Reg-W rules to every transaction and determines whether the transaction is permitted or not is reportable or not Executing this query results in the following table Reasoning time is about a second per transaction Copyright © 2014 SRI International

Comparing Results Analysis results can be stored and compared to previous analysis results (e.g., data changes, hypothetical scenarios) Save analysis results Change the capitalStockAndSurplus value of ABCBANK from $8M to $4M using the ontology editor Copyright © 2014 SRI International

Comparing Results Cont.
Re-execute query and compare the results New results in boldface, old results italicized and grayed out Copyright © 2014 SRI International

Why is a Transaction Permitted or Reportable? Understanding why certain analysis results were given is often just as important as getting results themselves E.g., determination of false positive and possible mitigation Pressing ‘?’ button yields English explanation Copyright © 2014 SRI International

Understanding and Tracing Analysis Results English paraphrase of rule can help with understanding analysis results For further inspection, automatic navigation: to rule definition (double-click rule name) to graphical representation of rule structure Copyright © 2014 SRI International

Summary: Sunflower Software
Transparent compliance decision making Interpretations of regulations shared across the enterprise Provenance of controls Rationale behind compliance analysis results in English Automatic ingestion of data from IT systems, spreadsheets, etc. Evidence chain of results Copyright © 2014 SRI International

Presentation Demonstration
Automating Compliance with Regulation W via Rulelog with Explanations in English, using Coherent’s Episto Technology Benjamin Grosof Co-Founder, CTO & CEO Coherent Knowledge Systems Copyright © 2014, Coherent Knowledge Systems, LLC

Automated Decision Support for Financial Regulatory/Policy Compliance
Problem: Current methods are expensive and unwieldy, often inaccurate Solution Approach – using Textual Rulelog software technology: Encode regulations and related info as semantic rules and ontologies Fully, robustly automate run-time decisions and related querying Provide understandable full explanations in English Proof: Electronic audit trail, with provenance Handles increasing complexity of real-world challenges Data integration, system integration Conflicting policies, special cases, exceptions What-if scenarios to analyze impact of new regulations and policies Advantages – compared to currently deployed methods: More Accurate More Cost Effective – less labor; subject matter experts in closer loop More Agile – faster to update More Overall Effectiveness: less exposure to risk of non-compliance Elie – 30 seconds - (Elie’s total 4.5mins up to here) Copyright © 2014, Coherent Knowledge Systems, LLC

Coherent’s Episto™ Platform
Complex Info English Text - Policy Docs, ... Optionally: Custom Apps - E.g., dev’d by Coherent queries, assertions, edits answers, view updates, decisions, explanations Episto User Interface Users Knowledge Base External Services/ Components DBMS Other SIMS Apps External Structured Info Engine Data Views Rules Schemas & Ontologies Elie – 30 seconds - (Elie’s total 4.5mins up to here) Java WS C XSB Prolog (open source) actions events KB = Knowledge Base. WS = Web Services. SIMS = Structured Info Mgmt. Sys., e.g., sem tech for OWL or Horn rules. Copyright © 2014, Coherent Knowledge Systems, LLC

Why is the Proposed Transaction Prohibited by Reg W?
Is the transaction’s counterparty an “affiliate” of the bank? YES. Elie – 30 seconds - (Elie’s total 4.5mins up to here) And here’s why … Copyright © 2014, Coherent Knowledge Systems, LLC

(continued) How was the limit calculated, using the bank’s capital, to determine whether the covered transaction was permitted Here’s how the aggregate-affiliates limit was determined Elie – 30 seconds - (Elie’s total 4.5mins up to here) Copyright © 2014, Coherent Knowledge Systems, LLC

Inferencing Fully Supports & Integrates FIBO OWL Info
Sample Query FIBO data Fuller screenshot of the above: Elie – 30 seconds - (Elie’s total 4.5mins up to here) Copyright © 2014, Coherent Knowledge Systems, LLC

….and so does Explanation

FIBO OWL as a Step in the Explanation

Summary: Coherent’s Episto for Compliance
Overall Advantages – compared to currently deployed compliance methods: More Accurate More Cost-effective More Agile Core Technical Advantages – over previous semantic tech / AI / biz rules / DBMS: Powerful rule-based AI combined with natural language, extends FIBO OWL Proof / audit trail: Understandable full explanations in English, step-by-step Subject matter experts in closer loop Elie – 30 seconds - (Elie’s total 4.5mins up to here) Copyright © 2014, Coherent Knowledge Systems, LLC

Regulation W Becomes Coherent Logic
Using Coherent tools: Regulation W is translated from English into logic, rapidly. A knowledge base is created, ready to make decisions and provide detailed explanations. Sample English Text: Any company that is advised on a contractual basis by the bank or an affiliate of the bank is considered an affiliate of the bank. Elie – 30 seconds - (Elie’s total 4.5mins up to here) Logical representation: Copyright © 2014, Coherent Knowledge Systems, LLC

Example Scenario (fictional)
A Loan to the Maui Sunset Hotel Group Pacific Bank is considering a loan of $23 million dollars to the Maui Sunset hotel group to open a new location on the island. Is this transaction allowed under Regulation W? As part of that, one must ascertain if Maui Sunset could be considered an affiliate under Regulation W. Elie – 30 seconds - (Elie’s total 4.5mins up to here) Copyright © 2014, Coherent Knowledge Systems, LLC

Example Scenario (fictional)
Relationships and Other Data Americas Bank Subsidiaries Pacific Bank Capital Stock and Surplus Kotzebue Bank Alaska Bank Pacific Bank $2500 million Hawaii Bank Elie – 30 seconds - (Elie’s total 4.5mins up to here) Previous Loans Advises Pacific Bank Hawaii Bank $145 million Alaska Bank $245 million Kotzebue Bank $100 million Maui Sunset Copyright © 2014, Coherent Knowledge Systems, LLC

Transforming Laws, Regulations and Policies into Ontologies and Business Rules: A Real Life PoC with Regulation-W (Reg-w) June 26, 2014 1 1 1.

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Transforming Laws, Regulations and Policies into Ontologies and Business Rules: A Real Life PoC with Regulation-W (Reg-w) June 26, 2014 1 1 1.

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Presentation on theme: "Transforming Laws, Regulations and Policies into Ontologies and Business Rules: A Real Life PoC with Regulation-W (Reg-w) June 26, 2014 1 1 1."— Presentation transcript:

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