Anastasia Kinsky: We are here in Lisbon at the Alpaca Partners Summit, and I am joined by Giovanni Corrado, the CEO of NextReg. Giovanni, thank you so much for joining me.
Giovanni Corrado: Thank you for having me.
Anastasia Kinsky: So you launched NextReg just this year, and I know you have a real focus on AI, but with that human touch to it. Tell us a little bit about NextReg.
Giovanni Corrado: Yeah. NextReg was born out of a deep conviction that we had, as chief compliance officers, that the system was broken for traditional finance, fintechs, and the next generation of wealth. That needed something different. So the idea of embedding AI into these repetitive processes, but allowing still for the human to be in the loop, but the machine to do the heavy lifting, could really change the way the fintechs operated in the market, day in, day out.
Anastasia Kinsky: Yeah. And using first and foremost that expertise, your experience in compliance, has always been a fascinating space because on the one hand, of course you want to mitigate very crucial risks in the financial system. But compliance has been traditionally very expensive, or historically very expensive, for funds, and not always that effective at mitigating the risk that it’s trying to fix. And what does AI do and how does it shape a little bit of that conversation with regulators?
Giovanni Corrado: Well, let’s be real. Compliance has always been the dinosaur in the room. The police officer in the room saying no, and often a pure cost center that was never driving any real growth and very often was missing very critical risks.
Anastasia Kinsky: Right, right.
Giovanni Corrado: So the regulators themselves, actually, a lot of people don’t know, leverage AI today themselves to examine firms, to surveil the markets. Right? So why shouldn’t firms also leverage that? But there’s a historical disconnect there, because the idea of allowing a machine to surveil your operations.
Anastasia Kinsky: Yeah, it’s kind of a contradiction for many people.
Giovanni Corrado: Absolutely. There’s a lot of people going against it. But today, the firms that are doing that properly and effectively, they find themselves reducing actually the amount of risk and increasing the amount of true positives that they find.
Anastasia Kinsky: Yeah, because it’s not the concept of, you know, fighting fire with fire, using a machine to look at a machine. It’s much more. And can you provide that oversight, that absolute holistic.
Giovanni Corrado: Correct. And it has to be 24/7. Of course, the issue with compliance, historically done purely manually and by humans, is that it was limited. Limited to sample sizes. Limited by time.
Anastasia Kinsky: Yeah.
Giovanni Corrado: Now it can be 24/7.
Anastasia Kinsky: Yeah. And far more effective. And talk to me about the concept of regulatory hosting.
Giovanni Corrado: Regulatory hosting is a concept actually that is not necessarily new. It’s something that developed in countries like the UK, but the US really didn’t adopt it for novel firms. For the new AI advisors, digital advisors, they adopted it somewhat for traditional wealth management with these big aggregators and mega RIAs and broker dealers, but no one has really tackled: how do we ensure that the fintechs who don’t want to get regulated, they don’t have the funds to be regulated, they don’t have the infrastructure to do so, how do we give them a regulatory home to still provide trading, to still provide compliant investment advisory under one compliant entity, built on top of technology such as Alpaca to enable the trading?
Anastasia Kinsky: Yeah, that’s such a fascinating way of dealing with this question, the sort of blurred lines between being a tech company versus carrying out financial activities, and which box you sit in. It’s like, well, actually, here’s a solution that brings you into the safe harbor, as it were. Digitalization, obviously, is reshaping so much of the financial industry. When it comes to that financial advice, what do you see digitalization doing in reshaping what we expect from financial advice? And how are you guys meeting that need?
Giovanni Corrado: The market traditionally has worked pretty much like this. [unclear: “You are the person who was your financial advisor.”] You’re paying them something like 1% to 2% yearly on the assets that they were managing for you, and then they parked you into a standard portfolio built by someone else [unclear: “in the investments team you call it that day”].
Anastasia Kinsky: Right, exactly.
Giovanni Corrado: No longer cuts it for the modern investor.
Anastasia Kinsky: Right.
Giovanni Corrado: The modern investor wants the data. Connect all of your data, your holistic picture, and then wants tangible advice signals, custom personalized advisory on your actual situation. That’s what the new wave of digital wealth looks like.
Anastasia Kinsky: Right. But that comes with substantial challenges from a data privacy perspective, from a hallucination perspective. If it’s not a human giving advice and it’s the AI, how do we control non-deterministic models, and how do we defend them in front of regulators when they come knocking on the door?
Giovanni Corrado: Yeah. The regulators have provided a path to do this. And now AI-based advisors are exploding much faster than traditional financial firms. But that question calls for specialized regulatory and compliance expertise for that market. That’s the market that we saw competition, which is traditional regulatory firms, not tackling. So we decided to get into it.
Anastasia Kinsky: It’s such a brilliant idea. And really to see that moving from things being not possible to possible but not practical, and now actually the issue of it being not practical is just not an excuse anymore. Because whether it’s with NextReg or companies like Alpaca providing the foundation blocks, the building blocks to then provide that expertise on top of it, a lot of opportunity is possible now to build a regulatory infrastructure, a regulatory rail for digital finance to flourish and democratize things through partners like Alpaca, who do the custody, who enable the trading.
Giovanni Corrado: But now we’re trying to build a second block, the regulatory block, that would allow the ultimate client, the fintech, to plug right into it in a technology-driven fashion and go to market much faster to serve the consumers.
Anastasia Kinsky: Well, it’s so awesome to see that merging of traditional expertise and understanding of the digitalization of finance and how that changes activities and how these needs can be met. So thank you so much, Giovanni. Fantastic explanation, and hope you enjoy the rest of the summit.
Giovanni Corrado: Likewise. Thank you so much.
