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The rise of AI and its impact on compliance

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The application of artificial intelligence (AI) in financial services and compliance is gathering pace. With its promise to make operations more efficient, increase visibility and free up time and resource by eliminating manual work, AI technology – and generative AI specifically – has been on regulated firms’ minds for some time now. 

Across financial services and within compliance, the adoption of AI has been considered by financial institutions for a range of use cases, including regulatory management, transaction monitoring, managing fraud risk, e-communications and voice surveillance, among others. As financial services firms are increasingly being required to innovate, they are grappling with high volumes of data and requirements from regulatory bodies to comply with new and fast-moving regulations. This is driving a need to create efficiencies in recurring, highly manual and time-consuming jobs, which can nowadays be enabled by AI.

 

Boost efficiency

In a recent fireside chat, Robin Lee, General Manager for APAC of AI technology firm Hawk, told ICA President Pekka Dare:

‘The operational [side] of compliance [entails] a lot of busy work like checking documents. This is where AI will come in and help.’

Lee hailed the technology as a significant opportunity, giving Microsoft Copilot – a generative AI tool – as an example of some of the latest AI applications being adopted in a variety of RegTech applications. The adoption of AI tools allows compliance professionals today to significantly boost their efficiency by automating routine tasks like analysing data. As a result, practitioners can focus on solving more complex compliance issues [1] and having important conversations across the business. While compliance professionals were previously required to spend hours gathering the details and writing up a case, AI can now take over this manual task and complete it within minutes, explained Lee.

However, associated risks, the nascency of the technology and the lack of regulatory clarity are making decision makers act with caution. In some cases, the AI-enabled tools are adopted in pockets within an organisation, as firms focus their attention on training their staff and the wider testing of that technology. Demonstrating that the tool has been rigorously tested, that it has a very high level of accuracy, and that it has been developed by experts who truly understand the nature of compliance, are important considerations when evaluating whether or not to invest in and roll out a specific AI-enabled tool.

 

New regulations

The question of accountability and responsibility is vital, and this is where regulations are playing an increasingly important role. Regulators in key jurisdictions globally are realising the need to provide specific guidance and regulate the AI space so that firms can both thrive by reaping the benefits and at the same ensure that AI is not being used by bad actors to commit crime.

While more work is needed, steps have been made in the right direction. The EU AI Act  was adopted in March this year, and while it will be fully applicable 24 months after it enters into force, some parts will be enforced sooner. For instance, the ban of AI systems posing unacceptable risks will apply six months after entry into force. Codes of practice will apply nine months after entry into force and rules on general-purpose AI systems that need to comply with transparency requirements will apply 12 months after entry into force.

The Asia Pacific (APAC) region is also moving towards more AI specific regulations, but the adoption of AI in the region is still at a nascent stage. Lee believes that technology in general, and AI as an extension of technology, are here to stay. As the COVID-19 pandemic massively accelerated digitalisation all around the world, technology has become part and parcel of compliance professionals’ work. 

Lee adds: ‘AI is merely a subset of technology and if you look at the way the world has headed, technology is inevitable. Back in the day technology was very fragmented; it had different lanes and you knew which lane you were in. Today everyone is a technology company. It is just inevitable that everyone would need to come to grips with this and with AI being an extension of technology, you’ll need to [understand] the programme.’

 

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[1] How Artificial Intelligence Can Be Used in Compliance, Mega, Link Last Accessed 13/6/2024