Most people have heard of the headline-making achievements in artificial intelligence (AI); systems winning quiz shows and beating world champions in chess. These are the poster children of the discipline but there is a quieter revolution taking in shape in other areas, including regulatory compliance in financial services.
Writing for Banking Technology, Mike MacDonagh, London-based director of enterprise risk management at Wolters Kluwer, examines how AI technologies are promising to transform the way that firms ensure they can comply with a global explosion of new regulation.
The problem with regulation Looked at in isolation, a piece of regulation is a relatively simple affair – a legal document containing text that describes what needs to be done, by whom, when, and (sometimes) how. With some understanding of the underlying topic, a compliance officer can read the document; understand what is mandated and where it will affect his or her part of the organisation.
The compliance officer can determine what is required in order to ensure compliance, what is required and how to demonstrate that compliance is met, not only to his management but also to the regulator. Of course things just aren’t that simple, this approach doesn’t scale easily and yet the scale and scope both of regulations and of the businesses of firms themselves continues to grow apace. In the real world, firms struggle to understand what legal and regulatory requirements they face everywhere they do business. Inevitably, they struggle to ensure compliance everywhere and are unable to demonstrate it to management and regulators, resulting in compliance failures, regulatory fines and, increasingly, personal legal sanctions for their management.
The problem is that, for each legal or regulatory text, someone has to read it, analyse it, understand the impact on their organisation, and then undertake and manage whatever actions are needed to ensure compliance. This task is multiplied for each regulation issued by each regulator, in each jurisdiction and for every line of business. As markets, and ultimately firms, are evolving, they can end up having to comply with thousands of regulations from dozens of regulators. Even if this mammoth task is achieved that is not the end of it: regulations change, their interpretation changes, and of course the firm itself changes. Firms have to keep up with all of this change. A medium-sized firm may have to scan hundreds of updates every week, identifying which ones affect regulations that contain requirements that affect them and then deciding what, if any, action is required in order to ensure continuing compliance. And the broader the business and product offering, the more complex the regulatory landscape they have to adhere to, becomes.