Compliance activities, costs, and associated compliance risks are material business concerns for large companies.
Understandably, many of these companies look for ways to keep up with regulatory compliance without sacrificing their budget.
Cost of Regulatory Compliance
Take a wild guess at what the global spend on financial crime regulatory compliance is in a year. According to a late 2023 LexisNexis Risk Solutions study, the estimated financial crime compliance costs for the prior 12 months totaled $206 billion.
Does that number surprise you? If you ask us, it’s better to be surprised by the cost of regulatory compliance before you’re faced with paying those costs for your own business.
Could Artificial Intelligence (AI) regulatory compliance solutions be the answer?
The reality is that AI technologies are already a prominent fixture for many businesses and their efforts to comply. Many businesses have already realized that AI serves as a potent catalyst for innovation and efficiency in this and other areas.
Now, these businesses navigate the global compliance landscape with enhanced precision and speed because they leverage AI’s unrivaled data analysis and pattern identification abilities.
Complex global mandates can feel impossible to navigate for companies big and small. With intelligent support, however, finding clarity among the convoluted rules of varied jurisdictions becomes much less daunting.
AI and Regulatory Compliance
To demonstrate the immense value of AI in regulatory compliance, here are just six of the many ways it makes associated activities more efficient and effective.
1) Risk Detection
AI systems can analyze copious data in real time, far outstripping the capabilities of human analysts. Whether monitoring millions of daily transactions, social media chatter, or employee behaviors, these AI systems can spot anomalies almost instantly.
For instance, AI may flag substantial overseas financial transfers for potential money laundering, or patterns in social media data might hint at possible insider trading activities. Through early detection, businesses can mitigate potential losses and regulatory repercussions.
AI’s predictive capabilities can also anticipate potential future risks using historical and emerging patterns. With this foresight, organizations can strategize a proactive, rather than reactive, response.
The result? Ensuring compliance and safeguarding their assets and reputation in a constantly shifting economic landscape.
For more information on AI and risk management, see our recent blog post on how AI can help enterprise risk management (ERM) in this post.]
2) Compliance Program Oversight
Businesses will have many compliance policies and procedures to conform to regulatory compliance requirements. With AI, businesses can efficiently run tests to confirm that established compliance policies and procedures are not just in place but actively followed.
AI continuously monitors activities like trading patterns or employee training participation. In turn, it can highlight areas where companies are at risk of non-compliance.
For example, let’s say an employee hasn’t attended mandatory compliance training. It should be an easy enough problem to fix. But if that information doesn’t get to the right person in a certain time frame? That little problem could become a big one.
Here’s how AI can help: The algorithm could automatically flag this oversight to those accountable, prompting immediate corrective action.
Regulations aren’t expected to ease up anytime soon. Instead, they’ll just become more intricate, making manual oversight more susceptible to human error.
On the other hand, AI systems can dynamically adapt to continually changing regulatory requirements. Businesses can use this ability to their advantage when it comes to regulatory compliance without substantial human involvement, which is time-consuming and costly.
This proactive approach enabled by AI can significantly reduce the risk of non-compliance and the associated repercussions, such as fines, ensuring a smoother operational flow and bolstering institutional reputation.
3) Draw Compliance Insights
The modern business landscape is overloaded with data from diverse sources. It can come from all angles, whether that’s global stock exchanges or individual customer transactions.
As the data multiplies, extracting valuable insights from these vast repositories becomes even more difficult. Traditional analytical methods, while still relevant (and likely always will be, although in changing ways), might not always be sufficient to capture the nuances and subtle shifts hidden within the complexities of this data.
With its deep learning capabilities, AI algorithms can dive deep into metadata layers. In doing so, they can identify intricate patterns and correlations that human analysts could easily overlook. As it identifies these underlying patterns, AI is a powerful tool for predicting and understanding market behaviors.
For instance, a sudden spike in a particular type of transaction might bring attention to emerging market trends or a potential regulatory focus area. FP&A analysts can also use these identified emerging market trends when developing forecasts for corporate budgeting.
4) Streamlining Routine Regulatory Compliance
Routine (and often voluminous) compliance tasks typically require significant, low-value human effort. Two good examples are document verification and expense report validation.
AI can complete these compliance tasks in a fraction of the time and with much more accuracy. This power limits the workload for employees tasked with ensuring compliance and identifying and managing misconduct.
An example might be the auto-validation of trader disclosures against actual trading activity to spot any signs of potential wrongdoing.
Consider the thousands of trades that might occur daily within a busy financial institution. Now imagine the time necessary to manually validate these trades against individual trader disclosures.
It’s one thing if you know all of that time and effort is going to pay off. But in this case, the process is daunting and prone to human error.
However, an AI system with the right algorithms can quickly cross-reference each trade against the respective disclosure. It can then instantly flag any mismatches or suspicious activity, spotting potential violations from the jump.
This swift detection, ideally, will mean:
- Quicker interventions.
- Potentially preventing larger regulatory issues.
- Integrity in an institution’s trading activities.
5) Limiting Mistakes and Raising Productivity Levels
Modern business is rich in complexity and human errors, whether from unintentional mistakes or simple oversight. Unfortunately, both of these qualities tend to necessitate meaningful economic and reputational repercussions.
The sheer volume of transactions and the pressure to maintain regulatory compliance mean that even minor mistakes can snowball into big problems. These mistakes are often the result of natural human vulnerabilities that none of us are immune to. Fatigue, cognitive biases, or momentary lapses in concentration, just to name a few.
Although these vulnerabilities might be universally common among humans, there’s no space for them in regulatory compliance. Instead, precision matters more than anything else.
Without this accuracy, businesses expose themselves to:
- Regulatory fines.
- Customer mistrust.
- Broader systemic risks.
On the other hand, artificial intelligence platforms operate without human constraints, vulnerabilities, or bias. Their precision and consistency simply can’t be matched by human effort.
Improved accuracy and speed will result in smoother regulatory compliance activities. From there, businesses can expect to minimize the risk of regulatory infringements and the associated penalties.
Furthermore, AI’s skill at handling large-scale data tasks means it can efficiently manage operations that would take human analysts a long time to complete. As AI shoulders these data-intensive responsibilities, human capital is freed up for more strategic activities.
6) Keeping on Top of Changing Regulations
Being compliant means operating and being onside with any and all regulations to which they are subject. Sounds straightforward enough, right?
Not so fast.
Keeping up with the latest changes can be, to put it mildly, a headache. This is especially true when operating across multiple jurisdictions. The good news is that AI plays a pivotal role here, too.
Advanced AI systems can be programmed to continuously scan and monitor regulatory databases, financial news outlets, and official announcements. In doing so, they can look for any regulation updates or amendments.
Once detected, these changes can be quickly disseminated to relevant departments or even integrated into compliance systems in real time.
For instance, let’s say a new money laundering rule is established in a particular region. AI can immediately notify the appropriate department, reducing the lag between regulatory changes and institutional compliance.
This proactive approach reduces the risk of non-compliance and potential fines. Instead, institutions are always ahead in the regulatory compliance game.
Wrapping Up: How are AI Solutions Helping Regulatory Compliance?
Regulatory compliance has become an increasingly complex balancing act, with expectations of both complete accuracy and meticulous efficiency steadily rising.
With companies facing intensifying regulatory demands, artificial intelligence is emerging as the answer they have long hoped for. It’s one that can guide them as they walk the delicate tightrope of compliance.
We have underscored artificial intelligence’s importance in improving regulatory compliance today and in the future—from identifying risks lurking within vast amounts of data to anticipating shifts in regulatory policy before they occur.
Financial institutions that tap into AI’s power can carefully traverse regulatory obstacles with expertise, confident that their innovation thrives alongside adherence to regulations.
With AI at the helm, the future of financial compliance will likely prove to be a lot more intelligent, agile, and efficient than it would if nothing changed.
Are you interested in finding out how AI can benefit your business? We invite you to book a free Datarails demo today.
We’d love to show you how our AI-powered FP&A chat platform (FP&A Genius) can offer you speed-of-light answers based on complete and consolidated finance data.
