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

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

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

2 Confidential Michael Atkin Managing Director EDM Council 2Copyright © 2014 EDM Council Inc. Welcome

3 Confidential Dennis Wisnosky Senior Advisor and Consultant EDM Council 3Copyright © 2014 EDM Council Inc. Background

4 Confidential Background 4Copyright © 2014 EDM Council Inc. 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

5 Confidential David Newman Strategic Planning Manager, Senior Vice President Wells Fargo Chair, EDM Council Semantic Technology Program 5Copyright © 2014 EDM Council Inc. Introduction

6 Confidential6Copyright © 2014 EDM Council Inc. 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 Presenters

7 Confidential 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 7

8 Confidential Wesley Moore MD, Compliance Controls and Infrastructure Wells Fargo Securities 8Copyright © 2014 EDM Council Inc. Compliance and Regulation W

9 Confidential 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 9Copyright © 2014 EDM Council Inc.

10 Confidential 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. 10Copyright © 2014 EDM Council Inc.

11 Confidential 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. Copyright © 2014 EDM Council Inc.11

12 Confidential 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 12Copyright © 2014 EDM Council Inc.

13 Confidential Elie Abi-Lahoud PhD, Research Fellow, GRC Technology Centre, University College Cork, Ireland 13Copyright © GRCTC- UCC Technical Approach

14 Confidential Main Concepts in Regulation W Objective of this PoC: Am I in compliance with RegW? Yes/No Why? / Why not? Start with understanding Reg W Objective of this PoC: Am I in compliance with RegW? Yes/No Why? / Why not? Start with understanding Reg W 14 Counterparty Bank 1) Is counterparty an Affiliate ? 2) Is transaction Covered? 3) Is Amount permitted? Copyright © GRCTC- UCC

15 Confidential Challenges in understanding Regulation W 15 Unstructured Text size –Federal Reserve System Final Rule 12 CFR Part pages of text in natural language –Summary: 19 pages (comprehensive review) Reference chains Definitions to identify, delimit and flesh out Complex sentences: Legalese and NL ambiguities Exceptions/ exemptions Copyright © GRCTC- UCC

16 Confidential Current Techniques 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? 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? 16Copyright © GRCTC- UCC

17 Confidential 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. 17Copyright © GRCTC- UCC

18 Confidential GRCTC methodology to interpret regulation in SBVR 18 Follow reference chains and produce self-contained sentences Define terms iteratively until all confusions are clarified Identify, Describe and Constrain links between terms Capture regulatory requirements using the interlinked vocabulary elements Regulations & related documents Clear, consolidated and transparent articulation of Regulatory requirements Copyright © GRCTC- UCC

19 Confidential Limiting PoC Scope using SBVR SE CFR II § Source: 12 CFR II § Each is defined Body Corporate FIBO Concept Copyright © GRCTC- UCC

20 Confidential Limiting PoC Scope using SBVR SE 20Copyright © GRCTC- UCC

21 Confidential Limiting PoC Scope using SBVR SE Not only terms but relationships too: Fleshing out the links between concepts 21Copyright © GRCTC- UCC

22 Confidential Limiting PoC Scope using SBVR SE Reconstruct the rule from previously defined “building blocks” to ensure confusion is removed 22Copyright © GRCTC- UCC

23 Confidential Limiting PoC Scope using SBVR SE Other examples of regulatory requirements captured in SBVR 23Copyright © GRCTC- UCC

24 Confidential Benefits of this Approach 24Copyright © GRCTC- UCC Elie Abi-Lahoud, Leona O’Brien, Tom Butler (2013) “On the Road to Regulatory Ontologies: Interpreting Regulation with SBVR”, AICOL, Bologna, Italy, Dec. 2013

25 Confidential Dr. Grit Denker Senior Computer Scientist SRI International 25 Presentation Demonstration Advanced Compliance Controls: Controls Automation Using Sunflower Copyright © 2014 SRI International

26 Confidential Approach Overvie w 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 Regulations, related laws, P&Ps, etc. Production data from IT systems, spread sheets, databases etc. Compliance, Business and IT Supports Compliance Program Lifecycle CreateImplementExecute/Audit Monitoring & surveillance reports Understand and formalize regulation Create policies Identify relevant data Understand and formalize regulation Create policies Identify relevant data Implement controls and analytics Validate and share across enterprise Automated data ingestion Implement controls and analytics Validate and share across enterprise Automated data ingestion Check results of automated analysis Escalate and act Defend to auditors Check results of automated analysis Escalate and act Defend to auditors Copyright © 2014 SRI International26

27 Confidential Reg-W Covered Transaction Scen arios Spreadsheet with 17 Reg-W scenarios Copyright © 2014 SRI International27

28 Confidential Reg-W Rule Development Translate each row into a formal, machine-readable Flora-2 rule Copyright © 2014 SRI International28

29 Confidential Transaction Trade Data Automatic ingestion of production data into Sunflower Spreadsheet importer SQL database importer Copyright © 2014 SRI International29

30 Confidential Sunflower Overview 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) Textual view of rules, ontologies and KBs (Flora-2) Current tool interfaces are for people with some training in semantic technologies. End-user interfaces will be provided according to needs Copyright © 2014 SRI International30

31 Confidential Translating FIBO to F lora-2 FIBO OWL ontologies and SWRL Rules translated (within seconds) into Flora. Copyright © 2014 SRI International31

32 Confidential Reg-W Transaction (in Ontology Editor) 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). Transaction instances Copyright © 2014 SRI International32

33 Confidential 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 International33

34 Confidential Which Transactions are Permitted or Reportabl e? Copyright © 2014 SRI International34

35 Confidential Comparing Results Analysis results can be stored and compared to previous analysis results (e.g., data changes, hypothetical scenarios) 1.Save analysis results 2.Change the capitalStockAndSurplus value of ABCBANK from $8M to $4M using the ontology editor Copyright © 2014 SRI International35

36 Confidential Comparing Results Cont. 3.Re-execute query and compare the results –New results in boldface, old results italicized and grayed out Copyright © 2014 SRI International36

37 Confidential 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 Copyright © 2014 SRI International37 Pressing ‘?’ button yields English explanation

38 Confidential 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 International38

39 Confidential Summary: Sunflower Software Interpretations of regulations shared across the enterprise Provenance of controls Transparent compliance decision making Automatic ingestion of data from IT systems, spreadsheets, etc. Rationale behind compliance analysis results in English Evidence chain of results Copyright © 2014 SRI International39

40 Confidential Benjamin Grosof Co-Founder, CTO & CEO Coherent Knowledge Systems 40 Presentation Demonstration Copyright © 2014, Coherent Knowledge Systems, LLC Automating Compliance with Regulation W via Rulelog with Explanations in English, using Coherent’s Episto Technology

41 Confidential Automated Decision Support for Financial Regulatory/Policy Compliance 41Copyright © 2014, Coherent Knowledge Systems, LLC 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

42 Confidential Coherent’s Episto ™ Platform 42Copyright © 2014, Coherent Knowledge Systems, LLC XSB Prolog (open source) Engine User Interface Knowledge Base Optionally: Custom Apps - E.g., dev’d by Coherent Java WS C External Services/ Components DBMS Other SIMS Apps External Structured Info Users actions events Episto queries, assertions, edits answers, view updates, decisions, explanations KB = Knowledge Base. WS = Web Services. SIMS = Structured Info Mgmt. Sys., e.g., sem tech for OWL or Horn rules. Complex Info - English Text - Policy Docs,... ‐ Data ‐ Views ‐ Rules ‐ Schemas & Ontologies

43 Confidential Query is Asked 43Copyright © 2014, Coherent Knowledge Systems, LLC

44 Confidential User Clicks the Handles to Expand the Explanation 44Copyright © 2014, Coherent Knowledge Systems, LLC

45 Confidential Why is the Proposed Transaction Prohibited by Reg W? 45Copyright © 2014, Coherent Knowledge Systems, LLC 1.Is the transaction’s counterparty an “affiliate” of the bank? YES. And here’s why …

46 Confidential46Copyright © 2014, Coherent Knowledge Systems, LLC Why is the Proposed Transaction Prohibited by Reg W? 2.Is the transaction contemplated a “covered transaction”? YES. And here’s why …

47 Confidential47Copyright © 2014, Coherent Knowledge Systems, LLC Why is the Proposed Transaction Prohibited by Reg W? 3.Is the amount of the transaction permitted? NO. It went over the limit. And here’s why …

48 Confidential48Copyright © 2014, Coherent Knowledge Systems, LLC Why is the Proposed Transaction Prohibited by Reg W? 3.(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

49 Confidential49Copyright © 2014, Coherent Knowledge Systems, LLC FIBO-OWL Import to Episto Knowledge in OWL/RDF is translated automatically into Rulelog

50 Confidential Inferencing Fully Supports & Integrates FIBO OWL Info 50Copyright © 2014, Coherent Knowledge Systems, LLC Sample Query FIBO data Fuller screenshot of the above:

51 Confidential ….and so does Explanation 51Copyright © 2014, Coherent Knowledge Systems, LLC

52 Confidential FIBO OWL as a Step in the Explanation 52Copyright © 2014, Coherent Knowledge Systems, LLC

53 Confidential Summary: Coherent’s Episto for Compliance 53Copyright © 2014, Coherent Knowledge Systems, LLC 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

54 Confidential Michael Atkin Managing Director EDM Council 54Copyright © 2014 EDM Council Inc. Wrap Up & Questions

55 Confidential55Copyright © 2014 EDM Council Inc. Mike Atkin Dennis Wisnosky David Newman Wesley Moore Grit Denker Elie Abi-Lahoud Benjamin Grosof Thank You!

56 Confidential Regulation W Becomes Coherent Logic 56Copyright © 2014, Coherent Knowledge Systems, LLC 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. 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. Sample English Text: Logical representation:

57 Confidential Example Scenario (fictional) 57Copyright © 2014, Coherent Knowledge Systems, LLC 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.

58 Confidential Example Scenario (fictional) 58Copyright © 2014, Coherent Knowledge Systems, LLC Relationships and Other Data Americas Bank Subsidiaries Hawaii Bank Advises Maui Sunset Pacific Bank Kotzebue Bank Alaska Bank Pacific BankHawaii Bank$145 million Pacific BankAlaska Bank$245 million Pacific BankKotzebue Bank$100 million Previous Loans Pacific Bank $2500 million Capital Stock and Surplus


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