BMO and Riskfuel collaborate on AI for financial transactions

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BMO Financial Group continues to leverage artificial intelligence (AI) in its operations with the recent announcement that it is partnering with Toronto-based startup Riskfuel Analytics.

BMO and Riskfuel plan to develop models for pricing and scenario awareness of structured derivatives transactions, which are complex, grouped financial instruments.

“Riskfuel uses Deep Learning to replace these slow simulators with very fast neural nets.”

Riskfuel builds AI solutions to accelerate valuation and risk sensitivity calculations. Founded in 2019 by capital markets experts, the company provides valuation solutions to banks and insurance companies in North America and Europe.
 

BMO and Riskfuel have already run a pilot project employing quantitative researchers from both firms. They worked together to develop a solution to speed up the valuation of autocallable notes.

An auto-callable note is an investment note structured and issued by a bank where the underlying asset was measured and is evaluated at specific intervals, according to a Tetrault Wealth Advisory Group blog post.

“Structured notes are traditionally priced using slow numerical techniques that simulate an extremely large number of possible future states of the financial markets,” said Ryan Ferguson, founder and CEO of Riskfuel. “Riskfuel uses Deep Learning to replace these slow simulators with very fast neural nets.”

BMO’s partnership with Riskfuel Analytics adds to its track record as an innovator in capital markets, employing AI to improve the client experience and operational efficiency simultaneously. Working with Riskfuel will reduce reliance on slow and expensive financial models to calculate pricing and risks of structured products.

For its part, BMO has been technology-driven for several years now, with a particular interest in AI. In May, the bank was recognized with two digital innovation awards for BMO CashTrack, an AI-driven capability that identifies and helps customers avoid potential cash shortfalls.

And, in 2018, the bank in conjunction with Finn AI launched a chatbot for Facebook Messenger to provide instance responses to frequent customer inquiries. While chatbots are now common, at the time BMO was the first major bank to introduce the technology.

“Riskfuel has delivered a cutting-edge proof of concept that promises the most significant step forward in quantitative finance in a generation. Removing the runtime hurdle opens the door for significant advancements in accuracy and realism of structured notes pricing models,” said Graham Wells, managing director and head of equity quantitative modeling in global markets engineering, BMO Financial Group.

The collaboration between BMO and Riskfuel marks the latest convergence between legacy banks and FinTechs.

In late August, for example, the National Bank of Canada took a majority stake in the Montreal FinTech, Flinks.

RELATED: Flinks CEO says Montreal FinTech has “grand plans” as National Bank takes majority stake

“FinTech is a tremendous opportunity for Canada’s financial industry because it can be very nimble and innovative,” maintains the Canadian Bankers Association. “On the other hand, Canada’s banking sector is known for its strength, stability, brand recognition and significant customer reach. Banks are today finding ways to improve collaboration between the banking sector and innovative FinTechs to the benefit of both parties and, importantly, their customers.”

The synergy between banks and FinTechs increased in 2018 with amendments to the Bank Act, the federal legislation governing how banks operate in Canada, according to the association. The amendments helped ease lengthy approval processes and restrictions on the types of investments banks can make in FinTech companies.

But progress has slowed in recent years while FinTechs impatiently waited for the delayed release of the federal Advisory Committee on Open Banking report. Open banking would allow Canadian FinTech companies to work more easily alongside their bank counterparts. Finally released in early August, the report called for the federal government to address financial screen scraping and replace it with an open banking system that is “safe, regulated, efficient, and protects [consumers’] interests.”

“The core objective now is to realize consumers’ right to data portability and move to secure, efficient consumer-permissioned data sharing enabled by a system of open banking,” read the report.

While both the Liberals and the Conservatives on the campaign trail have said they are committed to introducing open banking, it’s not likely to be put into practice until 2023 at the earliest.

BMO is the eighth largest bank, by assets, in North America. As of July 31, the bank possessed assets totaling $971 billion.

Charles Mandel

Charles Mandel

Charles Mandel's reporting and writing on technology has appeared in Wired.com, Canadian Business, Report on Business Magazine, Canada's National Observer, The Globe and Mail, and the National Post, among many others. He lives off-grid in Nova Scotia.