How AI Can Help Regulatory Compliance

Businesses around the globe face substantial regulatory compliance requirements and associated costs. The global spend on only financial crime compliance was estimated at $213.9b in 2021. For large companies, compliance activities, costs, and associated compliance risks are material business concerns.

Naturally, many of these companies are seeking ways to maintain compliance while lowering costs. Could Artificial Intelligence (AI) solutions be the answer? The reality is AI is already playing a role in business regulatory compliance, acting as a catalyst for innovation and efficiency. By harnessing AI’s unparalleled data processing and pattern recognition capabilities, businesses worldwide can increasingly navigate the intricate maze of global regulations more precisely and with greater speed. 

This article will review six areas AI can be used to make regulatory compliance activities more efficient and effective

1. Risk Detection

AI systems can analyze vast quantities of data in real-time, far outstripping the capabilities of human analysts. Whether it’s 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.

Moreover, AI’s predictive capabilities can also anticipate potential future risks based on historical and emerging patterns, helping businesses adopt a proactive stance. With this foresight, organizations can strategize their 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 it needs to follow to ensure they are in line with regulatory compliance requirements. With AI, businesses can efficiently run tests to confirm that established compliance policies and procedures are not just in place but are actively followed.

By continuously monitoring various activities, like trading patterns or employee training participation, AI can highlight areas where companies are at risk of non-compliance. For example, if an employee hasn’t attended mandatory compliance training, the system can automatically flag this oversight to those accountable, prompting immediate corrective action.

Furthermore, as regulations evolve and become more intricate, manual oversight will become more susceptible to human error. On the other hand, AI systems can dynamically adapt to continually changing regulatory requirements and ensure businesses remain compliant 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 inundated with a deluge of data originating from diverse sources ranging from global stock exchanges to 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 suggest emerging market trends or a potential regulatory focus area. These identified emerging market trends can also be used by the FP&A team when developing forecasts for corporate budgeting.

4. Streamline Routine Compliance Duties

Routine and often voluminous compliance tasks like document verification or expense report validation often require a significant amount of low-value human effort. With AI, these compliance tasks can be completed in a fraction of the time and with greater accuracy. This reduces the workload for individual employees and compliance officers tasked with ensuring compliance activities are completed and that any misconduct is identified and managed. An example might be the auto-validation of trader disclosures against actual trading activity to spot any signs of potential wrongdoing. 

For example, consider the thousands of trades that might occur daily in a busy financial institution or large corporation. Manual validation of these trades against individual trader disclosures can be daunting and prone to human error. However, an AI system with suitable algorithms can quickly cross-reference each trade against the respective disclosure. It can then instantly flag any mismatches or suspicious activity, ensuring potential violations are promptly identified.

This swift detection, ideally, will lead to the following:

  • Quicker interventions.
  • Potentially preventing larger regulatory issues.
  • Maintaining the integrity of the institution’s trading activities.

5. Minimizing Errors and Boosting Productivity

In the intricate and demanding environment of today’s business environment, human errors, whether they stem from unintentional mistakes or simple oversight, can translate to significant financial and reputational repercussions. 

The myriad of transactions and the pressure to maintain regulatory compliance means even minute errors can snowball into sizable issues. Such mistakes are often the result of natural human vulnerabilities, such as fatigue, cognitive biases, or momentary lapses in concentration.

Precision is a non-negotiable regulatory compliance requirement, and these errors could lead to:

  • Regulatory fines.
  • Customer mistrust.
  • Broader systemic risks.

On the other hand, artificial intelligence platforms operate without human constraints or bias. Its precision and consistency – especially when optimally calibrated – simply can’t be matched by human effort. Improved accuracy and speed result in smoother compliance activities, minimizing the risk of regulatory infringements and the associated penalties.

Furthermore, the ability of AI to handle large-scale data tasks means it can efficiently manage operations that would traditionally be time-consuming for human analysts. As AI shoulders these data-intensive responsibilities, human capital becomes available for more strategic activities such as evaluating merger and acquisitions (M&A) opportunities. 

6. Staying Current with Changing Regulations

Businesses must operate and be onside with regulations in an ever-changing regulatory environment. Staying current with the latest changes is critical and challenging, especially when operating across multiple jurisdictions. AI plays can play a pivotal role here too. 

Advanced AI systems can be programmed to continuously scan and monitor regulatory databases, financial news outlets, and official announcements 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 anti-money laundering rule is established in a particular region. AI can alert relevant teams immediately, resulting in minimal lag between regulatory changes and institutional compliance. 

This proactive approach reduces the risk of non-compliance and potential fines, ensuring institutions are always ahead in their regulatory compliance activities.

Conclusion: How are AI Solutions Helping Regulatory Compliance?

The demands for accuracy and efficiency have exploded in the intricate realm of regulatory compliance. As regulatory pressures mount, AI stands out as a transformative solution. 

We have highlighted AI’s pivotal role in modernizing compliance – from risk detection to predicting regulatory changes. Leveraging AI helps financial institutions expertly navigate regulatory challenges, promoting innovation and agility.

Simply put, with AI at the helm, the future of financial compliance promises to be more intelligent, agile, and efficient.

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