What is an ontology, and how does it work for regulatory compliance?

Taxonomy and ontology are essentially members of the same family – they have similarities and differences but are ultimately intrinsically linked.

What is a taxonomy?

A taxonomy is a way to classify hierarchical relationships between things in the same class. It is a hierarchical structure of parents, children, grandchildren etc. It delineates a hierarchical relationship going down a tree or up a tree of concepts within a group. Taxonomy is used, particularly within financial services regulatory change management, to represent lists of things that have a hierarchical relationship. It is relatively rigid in structure and typically only allows for an up-down movement.

What is an ontology?

An ontology, on the other hand, enables you to generate and maintain relationships of many types and between different objects. It is more flexible and allows for more complex, deeper, and sideways relationships between different projects and different classes.

Where a taxonomy is used primarily to represent hierarchical relationships and only hierarchical relationships between entities, an ontology allows for you to generate many more different types of relationships, where you can define and manage within the W3C semantic framework and Web Ontology Language (OWL) or its variants.

How does ontology benefit regulatory compliance?

Historically, banks have chiefly used taxonomy in their regulatory change management processes. Typically, financial institutions generate, build, and maintain a number of taxonomies that represent how their business operates. These are then held in a master-spreadsheet or databases.

This system becomes labor-intensive without the use of ontology. When a new regulation, rule or guidance is published there will typically be an impact assessment. It goes through a process where humans are tagging or analyzing or assessing that piece of regulation and mapping it against any number of existing taxonomic elements. This is traditionally quite a manual process, done by experts in the field of compliance, and is often a very repetitive, time consuming and costly exercise.

Much of this time-consuming, labor intensive work can be streamlined with the introduction of ontology mapped over existing taxonomies.

The introduction of ontology ‘levels-up’ regulatory change management processes. With an ontological framework, a financial institution can integrate multiple taxonomies, maintaining and defining additional relational information.

The addition of ontological elements means that when a regulatory change occurs, it only needs to be mapped to one element – for instance – one policy or one control. And then the ontology will do the rest of the inference work for you.

The result? Reduced time spent on impact assessment, reduced potential for human error and increased efficiency.

Find out more about CUBE’s Ontology here.