Solving the De-Risking Challenge

February 17, 2018

Correspondent banking, a critical provision of international banking that facilitates global trade and cross-border capital flows, is facing a multitude of challenges from regulation and regulatory pressure that threatens the very nature of the industry. The de-risking that has occurred over the last several years has placed tremendous strain on this activity, resulting in lost business opportunities as well as diminished economic growth and financial inclusion.

FIBA spoke with Gabrielle Haddad, COO of Sigma Ratings in a exclusive interview:

What are the main challenges faced by correspondent banking?

There are multiple challenges. Banks seeking to access the international financial system continue to struggle with building trust and reputation separate from the markets where they are located. Independent third-party offerings, like our ratings at Sigma, can play a big role in filling this need. And we believe that increased transparency will lead to more trust and the creation of new business relationships globally.

Regulation and regulatory pressure continue to be a challenge in correspondent banking. Despite regulatory pressures, there appears to be an increased desire to “re-risk” or re-enter many of the markets that were exited in the past. Balancing the desire to increase correspondent banking relationships with effective, efficient and intelligent risk management is critical to re-risking and managing existing correspondent relationships globally.

What’s the future of correspondent banking?

With the rise of Fintech, particularly payments startups and blockchain technology, there are competitors that have and will continue to try to reshape this industry. Yet, many of the regulatory and compliance issues that burden traditional correspondent banking remain. At Sigma Ratings, we also provide ratings to Fintech companies who demonstrate a willingness to be transparent and a desire to differentiate themselves on financial crime and governance risk vulnerabilities.

Why is Sigma Ratings needed today and how are you shaping the future of correspondent banking?

At Sigma, we are catalysts for the future of correspondent banking and cross-border payments. We identify, quantify and normalize non-credit risks (i.e. financial crime and governance risk) in emerging markets. We do this is in two ways. First, we have developed our Insight Platform that organizes publicly available information on companies around the world and applies machine learning to generate daily risk scores on thousands of entities. Our platform enables users to monitor existing counterparties, as well as quickly assess potential counterparties during the onboarding process.

Second, we offer entities the opportunity to “opt in” to provide additional information to generate a deeper risk rating on the entity. These ratings are used by entities to demonstrate to potential correspondents their commitment to financial crime compliance, to differentiate themselves from the risk of a market itself and for internal or board review purposes.

How is Sigma Ratings different than the credit rating agencies?

Credit rating agencies focus on credit risk—an entity’s ability or willingness to pay. At Sigma, we are looking at the non-credit risk, specifically the financial crime, governance and management risk of an entity. Our rating covers the inherent risk (i.e. business lines, geographic exposure, customer base) and the control effectiveness (i.e. management quality, organizational culture, policies and procedures, governance structures) of an entity. If someone puts a Sigma rating side by side with a credit rating report, there would be little to no overlap in the information covered. Today, especially in high-risk emerging markets, many of the fears and reservations of doing business in these markets stem from non-credit risk concerns. Sigma Ratings is the first to offer tools that help entities differentiate themselves on these types of risks while simultaneously building reputation and trust in the market.

What is the socioeconomic impact of the services provided by Sigma Ratings?

Our commitment to addressing the de-risking problem led us to build Sigma Ratings. At a macro level, Sigma Ratings provides global corporations with increased visibility and assurances needed to engage in business in emerging markets, increasing capital flows to spur economic growth and development. At a micro level, Sigma Ratings will increase remittance flows to emerging economies, to allow small businesses, microenterprises and individuals to access commercial financing currently unavailable and to generate significant social impact through financial inclusion. We believe that our ratings will incentivize better, more ethical behavior, leading to a healthier financial system and reductions in global corruption and fraud.

Can you tell us a little bit about your background?

My co-founder and our CEO, Stuart Jones, Jr., spent his entire career before Sigma working on counterterrorism and illicit finance matters and my decision to start the company with him came directly from my experience working in law and international development. I worked in over 30 countries across emerging markets, and during that time, I saw a deep need for more technology-driven, systems-focused solutions to economic growth and development challenges. It is the potential for significant social impact that drives us as founders and our entire mission-focused team.

Sigma Ratings Presents AI to IMF Leadership

November 28, 2017

 

WASHINGTON, D.C. – Sigma Ratings, Inc. “Sigma” presents today at an executive closed-door session organized by the IMF on the power of technology and how it can be used to address pressing policy concerns.  Specific applications include: financial de-risking and broader financial inclusion.  Sigma was selected from a number of leading American technology and risk companies, including IBM Watson, to participate alongside academic thought leaders and U.S. Government officials.

“We believe that transparency is the key ingredient in building deeper trust between geographically spread counterparties,” said Gabrielle Haddad, one of the lead presenters and Co-Founder and Chief Executive Officer of Sigma.  “Dynamically quantifying non-credit risk information around financial crime and governance serves as a critical step in helping companies more intelligently manage risk.”

Utilizing AI to Solve Pressing Policy Problems

Sigma’s presentation is entitled: “Using machine learning and alternative data sets to address de-risking.”  High-level aspects of Sigma’s approach to machine learning will be presented by Laura Edelson who serves as the company’s Chief Scientist and is a current PhD candidate at New York University.

“We are excited to participate today and help re-imagine and normalize non-credit risk across companies and high growth markets,” said Stuart Jones, Jr., Co-Founder and Chief Executive Officer.  “Sigma is filling an important market need and helping solve an enormously important global issue simultaneously.  Non-credit risk – and the lack of quantification and comparability in this area – is something that we thought a lot about when I was in in government and later in the private sector.  We are proud to be recognized as a novel, market-led solution.”

About Sigma Ratings

Sigma Ratings, Inc. (“Sigma”) is the world’s first non-credit rating agency. Sigma uses AI and machine learning to assess company-level non-credit risks (e.g., financial crime risk). The company’s mission is to help make the world more open and transparent by incentivizing and highlighting good corporate behavior.

For more information visit the company at: www.sigmaratings.com

Sigma Ratings to Present at ACAMS Dubai

November 9, 2017

 

Sigma Ratings, Inc. (“Sigma”) to attend the ACAMS 8th AML & Financial Crimes Conference November 12-13 in Dubai, United Arab Emirates.  Sigma’s founder and CEO, Stuart Jones, Jr., will speak on a panel with executives from industry about international best practice and the importance of standard setting internationally.

“Standardizing financial crime risk metrics across industry is our focus,” said Mr. Jones.  “This will help banks in the Middle East and beyond differentiate.  Quantification of these risks is as important – if not more –  as a credit rating.”

The Association of Certified Anti-Money Laundering Specialists (ACAMS) is the largest international membership organization dedicated to enhancing the knowledge, skills and expertise of AML/CTF and financial crime detection and prevention professionals. Our members include representatives from a wide range of financial institutions, regulatory bodies, law enforcement agencies and industry sectors.

Partnership with Barclays Accelerator/Techstars

October 29, 2017

 

Sigma Ratings, Inc., in partnership with the Barclays Accelerator and Techstars, is now headquartered and operating in New York City.  Sigma Ratings’ partnerships will help further develop and differentiate its products offerings which include ratings and an automated platform that generates daily risk scores on companies around the world.

“We are excited to be in New York and to have a partnership with one of the world’s leading banks and an organization that has successfully helped grow some of the world’s leading start-ups,” said Stuart Jones, Jr., Sigma Ratings CEO and Founder.  “New York makes a lot of sense as a base for our company, as we are working to dramatically change the way global business thinks about risk.”

Sigma Ratings is the world’s first non-credit rating agency.  Earlier this year, Sigma Ratings issued its first rating on a trade-based bank in Malta.  Sigma Ratings was developed and backed at MIT and is advised by a number of leading experts in the non-credit risk space.

“I spent most of my career in New York City thinking about how to connect financial services to the rest of the world and the importance that trust plays in making this possible,” said Gabrielle Haddad, COO and Co-Founder.  “Bringing Sigma to New York makes its faster and easier to communicate and align our mission with leading financial institutions operating here.”

Announcing the 2017 Class of the Barclays Accelerator, Powered by Techstars in NYC!