BenchMatrix’s CEO, Irfan Fazli, on what the future holds for Pakistan’s financial institutions on his interview to the “Safety & Security Today Magazine.”

Safety & Security Today met Irfan Fazli, Founder and CEO of BenchMatrix Pvt Limited on the sidelines of a technology summit in Dubai and got an opportunity to pick his brains on the challenges facing the general global financial industry and more specifically the Pakistani financial institutions and economy. Following are the excerpts of the conversation.

In 2010 Irfan Fazli, left a well-paying Middle Eastern-based banking job to venture into a start-up financial advisory and Technology Company. The company, BenchMatrix W.L.L since then has grown into a global brand with 4 global offices (Pakistan, Bahrain, Saudi Arabia and Canada) and is serving clients in more than 14 countries with footprints expanding across Europe, Middle East, North Africa, Turkey and Pakistan.

The company has more than 100 employees across its offices and has been involved in more than 50 technology led implementations and pure advisory engagements in financial and non-financial environments. Some of the leading blue-chip regional financial institutions and telecom companies are among its largest clients. The company prides itself as an innovator in financial technology and competes with the largest global technology brands in terms of functionality and service quality.

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S&ST: You and your firm have extensive experience in identifying and recommending plans to address risks in international financial markets. What are the key risks fac-ing Pakistan’s financial institutions in your opinion?

Risks faced by any financial industry of a country are based on a country’s business and social model, the effectiveness of the governance model by its regulatory authorities and its trade relationships with international partners. There are certainly many other factors that we would consider, but inherently these are the three vital fac-tors I give the highest weightage.

Today the country’s social and business model is going through a transformation phase. This transformation phase and its implications are yet to be seen. This is not purely based on local political and regulatory changes but changing technological environments and international business trends which may have a significant impact on the local banking business and operative models.

With the digitalization of the banking sector, the number of people with access to the financial sector will exponentially increase in the coming years. Banks now need to embrace this trend and expedite their transformation to-wards digital banking. Our next generation will only accept digital banking platforms.

I believe that traditional banking models will shrink in the long run, hence re-thinking their next 10-year transformation strategy and its proper phased implementation constitute the biggest risk and the largest opportunity at the same time.

S&ST: Do you see any immediate areas of concern that banks need to address to meet their transformation objectives?

Improvement is a continuous process. Like global banks, we are faced with some immediate risks that require attention from our financial industry. Money laundering, increased international regulatory requirements, cyber-security risks, unavailability of skilled staff and threats of disruptive technologies are growing risk trends.

Global banks today are faced with a daunting challenge to address and stop money laundering. They are expected to put an end to all criminal activity in the financial sector and this activity is getting extremely complex. It is not only the responsibility of the banks to prevent money laundering but it is equally important for local governments to challenge and halt all such criminal activities from the grass-root level.

Given the implications, banks need to be robust about their customer on-boarding, KYC and AML procedures. Automation and deployment of fool-proof control systems should not only be regulatory driven but embedded in the organization’s culture. Cybersecurity should take center stage amongst the key business controls mechanisms.

S&ST: What role are you referring with respect to the government?

As I mentioned earlier, our social and business model is going through a transformational phase, thus, banks are operating in a high-risk environment of the vastly unrecorded economy. This was an apprehension of both local and international financial markets for long but recently this concern has taken shape of increased scrutiny of FATF. This is one area that has come to prominence simply due to the magnitude, complexity and nature of unrecorded activity in the economy.

Nonetheless, it is not appropriate to only stress our efforts around the banks, but a concerted roadmap by the government, public and all financial institutions is needed to address it.

Financial institutions having a global footprint have a greater risk but banks with pure local operations are also not immune to the risks since they have relationships with foreign correspondent banks.

S&ST: What can banks do to improve the financial sector and meet FATF requirements?

FATF is a policy-making body that works with governments in bringing adequate legislative changes to counter money laundering and terrorist financing, but we have to plan beyond this policy-making and prevent unrecorded economic activity.

Three main areas where further improvement can help in detecting and preventing money coming from criminal activities include enhanced understanding of the AML subject at the governance level of the banks, building adequate skilled resources for future growth and efficient usage of technology to prevent money laundering.

S&ST: When do you think these areas will be improved or will it require more than current reforms by State Bank and the government?

Although the State Bank of Pakistan and the government have taken important steps both in policy and action to prevent unrecorded money from entering the financial system, this is not going to be an overnight change. But it is a journey that Pakistan’s financial industry has successfully embarked upon. Our financial industry is way ahead compared to many other developed and third world countries; we are simply faced by large magnitude and complexity of unrecorded money in the economy.

Our authorities need to define a vision for our financial industry and define a 5-10 year strategy on which all stakeholders i.e. banks, exchange companies, insurance firms and investment banks are aligned.

S&ST: AML is definitely a pain point for the government and financial institutions right now, what else is coming?

It’s simply the overwhelming burden and complexity of new regulations across all spectrum of the financial industry’s business which threatens its growth. We are witnessing global banks and corporations being penalized in billions of dollars by regulators for their inability to protect customer data, robo-signing, doing business with sanctioned countries and circum-venting regulations.

Considering the complexity and sheer volume of new regulations introduced such as CRS, FATCA, BEPS and the extent of information required for reporting, the banks must not be only vigilant but also deploy proper systems to facilitate information gathering and reporting. Due to the realization that compliance issues have taken center stage at local and international banks, experienced compliance professionals are in high demand. BenchMatrix’s compliance system has been independently recommended by the Middle Eastern regulators and has helped many institutions globally in strengthening their compliance processes.

S&ST: What other risks should the banks be concerned about?

Skilled resources are one of the pain points for the banks given the future lies in technology. I think we are not doing enough to develop new leaders or skilled resources in the banking sector.

I agree most of the banks have a training department and some banks are focused on training their employees. However, the digital transformation that we discussed earlier, will make the current skillset redundant. Hence, we need to revisit our competencies and benchmark them against the ones that would be required in the digital world.

Mr. Muhammad Aurangzeb, President & CEO, Habib Bank Limited (HBL), in a recent interview said, “We have to start thinking that we are an IT company with a banking license.” The digital transformation of the financial industry that we have been discussing cannot be explained more precisely. Banks will, therefore, need to look at the future and prepare the youth for the challenges ahead to ensure that they have the right skill set. A rigorous effort is required through partnerships with local and foreign universities and their management training programs need to be enhanced considerably to meet future challenges.

S&ST: Technology has also become a need of the hour for the banks but it also exposes the financial sector with new risks. What is your opinion about this area in Pakistan?

Although regulatory authorities have been pushing the Banks to improve their Risk and Compliance frameworks, banks are still struggling and being penalized for violation of mandatory requirements. Recent penalties of around PKR 185 million on four banks for AML breaches is mainly because these banks are probably managing AML manually.

The majority of the local banks are still in the transition phase of automat-ing their core banking and regulatory processes, and I believe this transition can be made smoother and more efforts can be focused on tapping new markets for the banks, which is financial innovation.

S&ST: Having the right technology and systems are very costly for the banks, would you agree?

It is just a matter of cost-benefit analysis, the basic idea is to change the culture within the organization. Rath-er than resisting the technological advancements, the management and the boards must realize that an automated risk and compliance regime is a necessity and manual monitoring of these frameworks will only add more to the existing costs in the shape of penalties and loss of business.

Hence technology deployment needs to be considered as an investment rather than as an expense, benefits of which will be reaped in the years to come. An important point to note is that systems costs have reduced significantly in recent years vis-a-vis the functionality they offer.

S&ST: Finding the right fit in terms of the vendor and the technology to be deployed is always a challenge. What’s your take on it?

The need of the hour is to view the vendors as business partners rather than suppliers. A top-notch system de-ployed in a complex international bank may not be the right fit for a small bank with local operations, despite the functionality it offers. Hence, finding the right technology and a reliable service provider can be challenging. Although, the big international technology companies provide top-notch products, however, it is the after-sales services that makes a huge difference in the overall experience of the clients which is where the local vendors take the lead.

S&ST: Last but not least, what is your vision for BenchMatrix and where do you see it in the next 5 years?

We are in the business of selling solutions. We do not consider ourselves as plain vendors who deploy systems, automate processes and vanish from the scene. We pride ourselves on the functionality of our systems and the pre and post-implementation service quality. We look to build partnerships with banks rather than be their system suppliers.

Our ambition is to be a true global technology and business solutions firm. And to achieve this we have our eyes set on the North American and European markets. The next 5 years will define us as the first Pakistani technology and business Solutions Company to be the partner of choice for North American and European banks, credit agencies and corporations. To achieve this, we already have set plans and their execution will start from early next year.

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