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Artificial Intelligence and Next-Gen Compliance

By Jean-Marc Levy, CEO, ComplySci

Technology adoption by compliance departments has noticeably changed the way that companies manage employee oversight and compliance management. Especially in the financial industry, technology has brought significant changes to surveillance and oversight expectations, and the methods used by teams to stay ahead of firm, industry, and regulator expectations.

Specifically, the advancement of artificial intelligence (AI) is creating new opportunities for greater data and predictive insights. From identifying individuals and firms that are operating outside the rules to conducting investigatory work, AI and its counterparts, predictive analysis and machine learning (ML), can make Compliance Officers more confident and proactive as they analyze significant amounts of internal and external data.

Machine and human, better together

Today, compliance professionals need to be nimble, adaptive, and use available technologies like AI to keep up with the increasing scope of work expected of them. In a best-case scenario, technology can be leveraged to make compliance faster, easier, and more manageable for the industry at large. Rather than being replaced by machines (a common anxiety), better solutions will augment the compliance efforts of human workers, freeing up more time for strategy and oversight.

As technology advances, so do the expectations for mitigating risk and detecting problems. Advanced technology has the capability of automating the detection of wrongdoing and signaling risky behaviors before they surface in other ways.

Even as RegTech continues to advance, humans will maintain pivotal roles for many aspects of a full compliance program. As the SEC Division of Economic and Risk Analysis (DERA) Acting Director Scott Bauguess said about his own team, “Machine learning algorithms may help our examiners by pointing them in the right direction in their identification of possible fraud or misconduct, but machine learning can’t then prepare a referral to enforcement.”

Future application outlook

As RegTech solutions evolve further, terms like AI and ML may understandably make many compliance leaders wary. Without a frame of reference around how the technology works, it’s easy for executives to be skeptical of its effectiveness on the business. However, as knowledge increases, many of these professionals will recognize how AI tools can both increase productivity and decrease costs.

Rather than viewing the technology as a necessary evil, there is a growing awareness of the strategic benefits that predictive solutions can offer. The speed and immediacy of the current business climate make the availability of good data insights especially important for responding to vital, timely questions from CEOs, board members, regulators, and other stakeholders. AI makes a clear case for parsing through big data with speed and accuracy, and shows clear benefits for mitigating risk, optimizing the workforce, and more.

Also, compliance leadership need to understand how AI can be used by bad actors to perhaps mask their identity or behavior in an attempt to get around regulations. The waters can quickly get murky as well. For example, is a transaction that looks suspicious an ethical employee using an AI model or a more serious case of insider trading? A deeper understanding of the technology can help compliance officers flag potential areas of concern and identify the need for more innovative policies and procedures.

As the benefits continue to outweigh the doubts, and technology advances, employees and leaders at every level will need to have a solid understanding of how their chosen platforms are helping them get fast and accurate data and a deeper understanding of their company’s culture.

The benefits of RegTech solutions

One of the biggest benefits of RegTech solutions overall is how they make the lives of compliance professionals easier. As technology grows more sophisticated, solutions have the ability to “learn” new patterns — fast. As such, compliance professionals and RegTech solutions can share responsibility for catching noncompliant behaviors, rather than the employee bearing the responsibility alone or having to rely on inconsistent manual processes. AI could even be used to power a suite of predictive analytics to flag future indicators based on past behaviors.

As machine learning patterns become rules, processes can be developed without relying on human programming. As a result, significant time is saved by automating the parsing of data, leaving workers to focus on the bigger picture.

AI can be a key component in keeping work scalable as the roles of CCOs continues to change, and compliance continues to become more and more integral to the success of the business. It’s unlikely that AI will ever completely replace the duties of compliance professionals — the human element remains irreplaceable for many operations — but finding the best balance between man and machine is paramount.

Adapting early can benefit companies in a variety of ways. Catching noncompliant behaviors through automated algorithms saves time, money, and, most importantly, reputation. A forward-thinking approach can also signal to the entire company that compliance is taken seriously and monitored efficiently.

Now is the time to prepare your compliance department for AI-driven RegTech solutions. Is your firm ready?