Australian Financial Review
James Eyers, Senior Reporter
August 2, 2023

Former National Australia Bank chief executive Cameron Clyne has re-emerged in the banking sector, investing in and advising a start-up, Swarm Dynamics. It makes artificial intelligence-powered software to help banks identify and resolve their cultural problems. Since he departed NAB as CEO in August 2014, NAB has had a few. Mr Clyne passed the baton to Andrew Thorburn, who was dragged through the coals of the Hayne royal commission. This triggered his departure, along with chairman Ken Henry in 2019. Both were singled out by Kenneth Hayne, in his final report, for not learning the “lessons of the past”.

Now, Mr Clyne is helping develop software for banks, so they can improve regulatory compliance. It combines behavioural science, social network analysis and AI, using them to measure bank team dynamics and staff psychology by scanning metadata on internal communications. Swarm, on whose advisory board Mr Clyne sits, is already supplying its system to one major Australian bank (not NAB, but he would not confirm the name) and three global banks.

The software builds networks of human collaboration. This helps banks understand cultural risk, by showing managers who is talking to whom. It can be used by banks to show they are meeting expectations under “enforceable undertakings” with regulators. entered an enforceable undertaking with AUSTRAC last year to improve its systems to ensure compliance with anti-money laundering laws. This came after separate problems at the royal commission, which found the bank had not accepted “the necessary responsibility for deciding, for itself, what is the right thing to do, and then having its staff act accordingly”.

Mr Clyne refused to comment on the performance of Mr Thorburn or NAB since his departure. But he said the Hayne inquiry laid the foundations for his latest move by illustrating that banks, including NAB, could benefit from gathering better data about staff interactions and feeding this through to the risk management teams. “Banks like NAB are incredibly complex,” he said. “You spend all your time thinking about risks, but are never quite sure you have identified them all. But banks need to demonstrate they have looked hard to find them, and what banks went through in the royal commission gave me a view that [Swarm] was going to be a tool that would be very attractive in the market.”

Also chairman of Rugby Australia from late 2015 until 2020, Mr Clyne has worked with one other start-up since he left NAB. He was chair of Whitecoat, a health payments and data company, which was acquired by Commonwealth Bank in 2021. CBA is using it to take on NAB’s HICAPS subsidiary, the biggest provider of payment terminals to the allied health sector.

His new focus is on “regulatory technology”, also known as “regtech”. Swarm operates over banks’ digital communications systems, such as emails or Slack, analysing communication patterns to predict staff behaviour. It doesn’t have to read the body of an email (many banks have concerns about privacy regulations, including Europe’s GDPR regime) but can do its work from simple information contained in basic metadata, mostly who messages are being sent to and received from.

Mr Clyne said this improves the current approach, where banks typically conduct “culture surveys”, which might tell managers what staff are thinking but not necessarily what they are doing in practice. In contrast, he said Swarm helps lenders to “constantly monitor the sort of things that caused the problems in the first place”. “Being able to demonstrate with some degree of analytical objectivity that you have actually made a step change helps move the dial and make demonstrable change to move an organisation forward.”

While they will never endorse a particular technology, he said conversations with financial regulators, in Australia and around the world, have revealed interest in the tool because it can “provide a great degree of certainty cultural change has occurred and this gives the regulator comfort [change] is not based on a pulse check or culture survey but on hard analytics behind it”.

Capital Raising

Swarm is looking to raise $US5 million ($7.6 million) of capital in a Series A round to scale up its marketing efforts in the United States and Britain – where Mr Clyne says banks face even more regulatory complexity than in Australia. Some banks are looking at the software to help them monitor staff working from home.

Swarm co-founder Harry Toukalas says banks’ response to the Hayne royal commission mostly involved investigations into “bad apples” – individuals – but “the barrel is more important than the apple”. “Bad apples are a symptom of an underlying problem, they are not the cause,” he said. “Organisations are social systems. The real cause of poor risk culture is the local social environment in which people work.”

With artificial intelligence emerging as a huge topic this year as banks look to deploy it to reduce costs,  despite an absence of clear regulation, Mr Clyne said retaining human control of risk settings will remain paramount in the AI era. “Banks have always been involved in trying to automate processes, but ultimately, you have to have people who set risk parameters. Even if you have highly automated processes, a bank is fundamentally an organisation that thrives on ongoing communication between people.”

Mr Clyne declined to comment on last month’s Federal Court decision against Helen Rosamond, who was sentenced to jail for participating in a scheme to defraud NAB, after he gave evidence in her trial. Mr Clyne’s then chief of staff, Rosemary Rogers, was involved in the scheme, which Judge Robert Sutherland, in the decision relating to Ms Rosamond, said Mr Clyne had unknowingly facilitated when he was CEO, having provided Ms Rogers with a delegated authority to approve expenditure up to $20 million. Ms Rogers pleaded guilty in 2019 to charges of being an agent corruptly receiving a benefit and was sentenced to a combined eight years in jail in January last year.

Swarm co-founders Mr Toukalas, who is CEO, and Tim Boyle, are both former risk executives in banks. Swarm is their second venture together, after creating Blackhall & Pearl, which provides specialist board performance and risk consulting advisory services. Kevan Jones, a former partner with Oliver Wyman, where he led the risk culture work stream of the APRA prudential inquiry into CBA, is another investor and advisory board member of Swarm.