“The difficulty lies not so much in developing new ideas as in escaping from old ones” – John Maynard Keynes
The Global Financial Crisis prompted a wave of regulation, designed to guard against a repeat of the catastrophic systemic failure. This has placed a significant burden on financial institutions, not only to comply with the new regulations, but to evidence their compliance and produce regular reports. ‘RegTech’ (regulatory technology) has emerged as a means to ease this burden, minimise errors and speed up the process.
Diana Paredes was working on the trading floor at a major bank, doing a lot of its regulatory analysis, when she recognised the problem. “Regulation was asking the same thing from one financial institution to another. We saw a means to relieve the burden of regulatory maintenance and reporting.”
She set up Suade Labs in 2014 as a ‘Regulation- as-a-Service (RaaS)’ software platform, part of a new wave of ‘RegTech’ solutions. The firm’s software enables financial institutions to process large volumes of data, sorting it to meet the regulatory requirements, and perform the necessary calculations for risk measurement and reporting. She firmly believes that a data-driven approach to regulation is key to preventing the next financial crisis.
In the early stages, the difficulty was not, as might be expected, a technological one. Yes, banks and asset managers had legacy systems that needed to be replaced, but the real issue was encouraging companies to see how their existing processes could be re-engineered. There were those with a vested interest in the status quo that weren’t keen to adapt.
“The resistance we encountered was due to legacy mentality, people being used to doing things manually or outsourcing efforts to contractors and consultants who only realised how compelling our proposition was when they understood the cost savings they made. We were trying to disrupt legacy systems but really most of disruption comes down to changing people’s mentality and approach,” says Diana.
Nevertheless, once she and founding partner Murat Abur started building traction, the business grew rapidly. Financial services companies increasingly recognised that they needed a better solution. The difficulty of keeping pace with regulatory change with systems that are old, antiquated and not flexible grows over time. As Diana points out, businesses end up in a situation where they can’t adapt to the rules, which are constantly in flux. Modern technology is really the only way to do this.
Today, the business serves a broad range of financial services groups,from small challengers to Tier 1 banks. It focuses on prudential regulation stemming from Basel III and MiFID II, and its products including a stress testing platform for capital requirements and scenario testing for liquidity management.
Controlling your destiny
The group has been profitable from its first year of operation. This has had a number of advantages, notably that it has not had to call in significant external funding. It has worked closely with Microsoft Ventures, which has provided invaluable support, but in general, the group has been able to control its own destiny without the pressure of external board members. It also means it can sustain its independence, which has appeal for many of its clients.
Diana believes that external finance can be a hindrance as much as a help: “We have never had the pressure of having to go to the market for funding because we are running out of money or have someone on the board deviating us from our laser sharp execution. That means we are free to run the business as we want. Investors are not always bad but it is disappointing to see the poor quality of investors in the EU market in particular. There is a stereotype that investment always helps, but the wrong investor can have a terrible impact on a company as well.”
There is also the problem that the type of places where she may look to raise finance do not necessarily understand how to support female founders. As an engineering major and someone with a decade of experience on the trading floor, she is well-used to an all-male environment.
She hasn’t been aware of any bias through her career, but she is aware of the issues women founders face in raising finance, with the lack of infrastructure for working mothers and childcare being one of the key reasons investors do not tend to invest in female founding teams. She aims to get involved in projects that raise the profile of female entrepreneurs and women in technology to change that.
She participates in a multitude of events as a thought leader advocating for more women in technology and more transparent supervision. and regularly lobbies on behalf of the tech community on key issues to the government and policy makers. That said, it wasn’t her plan to be a trailblazer for female entrepreneurs. She didn’t even know that would be ‘the job’, she says, until she tried it: “Entrepreneurship is not for everyone, but if it’s for you, it’s the best job you’ll ever have. I didn’t really understand what it meant to be a CEO, but it’s really amazing.”
Her advice for those looking to branch out? As Nike said, ‘Just Do It’. She adds: “In the worst case scenario, you find it’s not for you and you will have no regrets that you did not try it out and can always go back to a ‘conventional’ environment. In the best case scenario, you discover you love it and cannot imagine ever working anywhere else. Either way, you will have learnt something and isn’t that what life is all about?”
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.