Banks and other financial institutions
have been confronted by an intimidating
stack of new regulations in the years since
the global economic meltdown of 2008.
“If those new regulations were on paper,
they’d be as high as the Eiffel Tower,” says
John Byrne, a 2007 graduate of a yearlong Executive Education program for
entrepreneurs at Stanford GSB.
But somewhere in the landslide of
54,000 regulatory documents (published
by 130 different agencies in G- 20 countries),
Byrne found a business opportunity.
He’s now CEO of Corlytics Ltd., a global
company, headquartered in Dublin, that
calls itself “the world leader in regulatory
risk impact intelligence.” Byrne started
the company in 2013 and focused on it full
time after selling his securities software
company, Information Mosaic, in 2015.
Corlytics uses analytics to understand
the real meaning of each piece of regulation.
Its software combs through a database of
more than 7,000 cases that have been read
and interpreted by the company’s lawyers,
risk analysts, and data scientists.
Corlytics’ original staff of nine has
grown to 38, and the company now has
offices in Dublin, London, the U. S., and
Australia. Last January, it finished a new
round of investor funding that brought its
total to more than $5.3 million.
You’ve said the biggest risk for the
world’s top 20 banks today is regulatory
risk. Does that represent a major
change? It’s a huge change. Last year, there
were about $100 billion in fines levied on
banks for not complying with regulations.
In 2008, before the big financial crisis,
that was less than $1 billion. Back in 2008,
compliance was a nuisance function that
you kept in the back office. Its importance
wasn’t fully appreciated, and there’d been
a complete lack of investment in it. Fifteen
years ago, banks may have paid attention to
the regulators, but they didn’t worry about
them the way they do today.
What role did that 2008 crash play in
your decision to start Corlytics? I was at
a financial services conference in Vienna
in 2008 when Lehman Brothers filed for
bankruptcy. There were 9,000 bankers
there from all over the world, and what was
immediately on their minds was that no
major banks had failed since the previous
crash in the late 1920s. Suddenly, one of
the top 10 investment banks was gone, and
it created a problem that no one had ever
seen before. No bank was able to measure
the type of exposure its clients had because
of the Lehman failure. So that week started
with people being bullish about banking
and the markets, and it ended with people
questioning everything. It was a watershed
moment. That’s when the G- 20 states
decided to globally regulate banks, to make
sure they don’t take on too much risk.
You were CEO of Information Mosaic,
a securities software company, at the
time. Was there a connection? We grew
between 2008 and 2012, but I could see
that the real growth was in the regulatory
side. I founded Corlytics in 2013 because
I could see my clients were shifting
their spending toward regulatory and
compliance systems. The risks of not
doing so were becoming obvious. For
example, in 2014 Bank of America Merrill
Lynch paid more than $16 billion in fines
because of mortgage-backed securities
issues, and last year Deutsche Bank had to
settle with the U. S. Department of Justice
for $7.2 billion because of compliance
violations. Those are big impacts. Since
the crash, there have been 39 incidents
of banks paying more than $1 billion in
fines. About $250 billion was wiped off the
balance sheets of the top 20 banks in the
world, mostly in the U.S.
Why are you still in Ireland? We now have
38 staffers globally, with offices in both
Boston and New York. We may eventually
have some people based in Washington,
because that’s where the regulators are.
But we see ourselves as a global company.
We already have a presence in Australia
and plan to grow our Asian presence. The
company will probably shift in 2018 and
become more U. S. focused.
Any specific developments that
convinced you to focus your energy on
Corlytics instead of Information Mosaic?
In December 2012, I met with three clients
who were discussing their budgets for
the following year. They said they were
allocating most of their IT budgets to get
ready for new regs coming into force in
2013-14. For some, it was a third of their
entire I T budget. I then asked t wo very
large banks how they measure the risk of
getting fined. After three months, they still
couldn’t tell me how many fines they’d have
globally. They didn’t know the value of that
to their own organizations. So, I started
looking into the feasibility of the regulatory
in Red Tape
There’s profit to be found helping
companies navigate the ever-shifting
global seas of government oversight.
BY MARTIN J. SMITH
Photograph by Manuel Vazquez