Banks, investments and financial services are not known to be bastions of transparency — not to the general public, and, as the last financial crisis laid bare, sometimes not even to the people who operate within them. This was a fact known all too well by Andrew Hedley. Working in the area of risk at companies like Vanguard and Prudential in London, his job boiled down to an important role: understanding where data was going, being used where it was supposed to be — which in turn was inherent to being able to assess risk, and critically to reduce it.
That was easier said than done. Financial institutions have a lot of plates spinning simultaneously and thus present a data nightmare, so much so that outside troops had to be called in to help figure out better systems.
The outside help came from, among others, another risk specialist called Matthew Ransom, who was working at Deloitte. Together, they could see that the problem not endemic to one specific company but industry-wide, and getting worse. They spotted an opportunity: build a better platform to help financial companies manage their data for risk and compliance data, and the customers would come.
Novatus is the startup they founded to create that platform (they’re pictured above, with Ransom on the left). Now with some 30 major clients using its products including MUFG, NatWest Group, Revolut, Wellington, Allspring and Artemis, the company is announcing a fundraise of $40 million to expand its growth into new markets.
Silversmith Capital Partners is leading the round with participation from previous backer Maven. With this round, Novatus’s post-money valuation is in the region of $150 million.
At its core, Novatus is targeting a basic problem of complex data management that needs to be carried out under equally complex conditions.
The global banking crisis of 2007 shined a spotlight on the risks that had been built into the global banking system. Combined with this, we’ve seen a major shift towards how data is handled across financial institutions: data represents a forensic record of what companies and individuals are doing, so it’s important to retain it to understand why something goes wrong. On top of these two factors, there is a much stronger push for data protection and making sure that data that is retained for these purposes is also handled responsibly.
All of this adds up to a lot of different regulations — some imposed by governments some by industry bodies, some by companies themselves — and that in turn can be tricky for a company to balance.
“If we think back to the financial crisis, one of the biggest issues was the lack of transparency,” said Hedley. “We had derivatives on derivatives, so we did not understand where there was risk in the financial system.”
That spurred a lot of action to fix this both from within and from outside.
“Regulators demand that our clients provide them with accurate, complete and timely reporting. That, in itself, sounds like a simple task, but it’s incredibly complex when you overlay the volume of data on ever-changing regulations. What makes it so appealing and necessitates automation and technology is the fact that these requirements are getting more stringent globally.”
Novatus’ flagship product En:ACT, is a SaaS platform that essentially helps companies manage their data to comply with its particular reporting regimes. As with a number of other SaaS plays of this kind, Novatus complements the automation with an advisory service, humans that can help tailor how the platform works for specific use cases.
While Novatus is sticking with its anchor of humans who help apply its technology, that is not always the case everywhere, which in itself presents a bigger opportunity for the startup.
“If you look at U.S. employment coming out the financial crisis, there were millions and millions of jobs lost, both public and private,” said Ned Kingsley, the principal at Silversmith who led the investment. “The regulatory regimes have become more strict and more onerous, but there’s less people to deal with them. So we feel like the only way anyone can solve that problem is technology, because it’s just the heads just aren’t there anymore.”
The company has offices today in London and Sydney, and the plan will be to use some of the funding to invest in its technology, and some to expand in North America, the founders said.
