In Luxembourg, financial services accounts for 31% of the national GDP – translating to around €16.4 billion. As the largest single sector within the economy, it’s a significant industry that’s undergoing an all-encompassing digital transformation. In today’s age, new technologies are continually emerging and evolving, which changes not only customer expectations, but also the regulatory demands on financial institutions. Support in the way of research expertise can help the financial sector to adapt to this new technological landscape.
It’s this idea that has led to the development of the National Centre of Excellence in Research in FinTech (NCER-FinTech), established in 2023 between the University of Luxembourg’s Interdisciplinary Centre for Security, Reliability and Trust (SnT) and the Faculty of Law, Economics and Finance (FDEF). Awarded by Luxembourg’s National Research Fund (FNR), it has the ambition to bring world class education and research to Luxembourg’s FinTech institutions.
Within the framework of the NCER-FinTech, the Software Verification and Validation (SVV) research group at SnT, headed by Prof. Domenico Bianculli, is exploring the synergistic application of innovative software engineering techniques and AI-based tools to ease compliance with financial regulations. The projects, named AFRICA, ICCOFIDO and RUMOFA, combine the software engineering expertise of SVV with the legal and financial expertise of the FDEF. All aim to streamline regulatory processes, as these financial challenges are persistent, with little existing research into the problem.
Within the AFRICA project, which stands for Automated Financial Regulations Change Impact Analysis, the group is aiming to detect changes in financial regulations, and semi-automatically analyse the impact of those changes on the compliance of software used by financial institutions. “It is vital that financial information systems are kept compliant with changing regulations, so the impact of an automated tool that could inform institutions on the impact of regulatory changes could be transformative within the industry,” explains Prof. Bianculli, professor of software engineering and principal investigator on all three of the projects. “The subsequent impact analysis that we are aiming to automate could then provide users with recommendations on how to remain compliant, as well as assess the impact of the introduced, amended or repealed regulations on their IT operations.” The team working on the project also comprises Dr. Sallam Abualhaija, Dr. Marcello Ceci and Dr. Nicolas Sannier from the SVV group. On FDEF’s side, Prof. Dirk Zetzsche, professor in financial law and ADA Chair in Financial Law and Inclusive Finance, serves as co-principal investigator of both the NCER-FinTech and the AFRICA project. He works alongside Dr. Marco Bodellini to assist the SVV group in classifying the regulatory changes when they occur.
Along a similar vein, ICCOFIDO – or Incremental Compliance Checking of Financial Documents – is exploring just that. An accelerated method of checking the compliance of financial documents that fall under regulatory supervision. Regulators require funds to produce and amend documents with specific content; while some of these are short, many others can be up to 100 pages in length. “ICCOFIDO aims to detect changes within the various versions of a document, using the initial approved version as a baseline. This process will then determine where the compliance checking process should focus,” Prof. Bianculli explains. This type of software automation could save hundreds of hours in regulators’ time, by speeding up and streamlining what is currently a cumbersome process. The SVV group is assisted here by the FDEF’s Prof. Stanislaw Tosza, professor in compliance and law enforcement, as well as Dr. Salomé Lannier, Dr. Olivier Voordeckers and Martina Siclari. The FDEF team contributes to the project by characterising, from a legal standpoint, the impact of changes on compliance rules and the dependencies among rules.
The final project they are leading is entitled RUMOFA, which stands for Runtime Monitoring of Financial Activities. “When a fund is operational, it will perform some transactions, for example buying and selling of shares in a predefined market,” describes Prof. Bianculli. “The behaviour of the fund, as observable through these transactions, must be compliant with regulations,” he continues. As part of this project, the SVV group are working on an automated approach that, after extracting information from regulations and documents and converting it into compliance requirements, would be capable of using such requirements to automatically verify whether transaction records comply with them. Leveraging a variety of software engineering techniques and AI-based tools, the team will be able to accurately identify the various types of metadata pertaining to compliance requirements and to automatically generate scalable monitors for efficiently verifying if transactions meet regulatory requirements. On FDEF’s side, they are supported in this project by Prof. Michael Halling, Professor for the Chair in Sustainable Finance, who serves as co-principal investigator of the NCER-FinTech as well as the RUMOFA project. The FDEF team brings here its expertise in finance to build a model that describes in a comprehensive manner the information types that are vital for compliance of fund activities.
Between the three projects, there are overlaps and connections, but they were designed independently as ways that financial processes can be streamlined through the implementation of world-class software engineering research. Under its belt, the NCER-FinTech has many projects just like these that are working towards an end goal of strengthening Luxembourg’s position as an innovative financial hub.