AI its usage to manage regulatory compliance in banking Fin Services

September 18, 2018

A recent study revealed that the estimated annual cost of regulatory compliance and governance software spend by our banks is around $70 billion. Bank attorneys, loan officers and paralegals spend thousands of hours into loan agreements, regulatory compliance filings and other contracts to see if they comply with the law. Artificial Intelligence or AI has found its latest application in this significant issue among bankers. We are looking at a whopping 30% reduction in the total cost with this AI application.

How AI Helps…

The AI-based systems are now being implemented to document verification. They have been successfully tested to interpret regulatory meaning, comprehend the required action and codify the compliance rules. The Contract Intelligence (COIN) programme developed by JPMorgan Chase is an example of the early adoption of AI technology. Through this system, the company can process loan documents that would cost around 360,000 working hours.

Some other areas of compliance services where AI can offer more safety are the following.

  • Know Your Customer – It’s already clear that AI systems can analyse a vast amount of data and scrape the web to find patterns. This ability can be used to strengthen the KYC processes. Pattern recognition techniques paired with unstructured text analysis, these systems can identify risk-prone customers.
  • Money Laundering Detection – Using AI, monitoring reports and regulatory alerts can be evaluated as risk indicators. The accounts with more significant exposure to these indicators can be analysed further. It reduces the complexity of the existing Anti Money Laundering systems.
  • Detection of Rogue Employees – It is possible to find the employees who generate fake account using AI. Reports using same e-mail or IP address can easily be tracked down by AI.
  • Trade Monitoring – AI can learn about the trader’s behaviour and personality. This will lead to more precise predictions about suspicious trading. The time lost due to false alarms can be saved.

More and more application of AI in financial regulatory compliance can be expected with the progress in the algorithmic machine learning models.

Challenges In Implementing AI

Regardless of the immense pros, few issues are slowing down the AI implementation. The problem of rectifying information processed by the AI is considered one of the biggest. We know that often our internet can be riddled with fake news and misinformation. If such information gets to the AI and influences its decision, the result would be terrible.

The efficiency offered by AI in decision making is tremendous but, it also takes the professionals away from this decision making process. It may create an opacity for the regulators to see if the proper procedure is being followed for business practices such as suspicious activity reporting.

Despite these challenges, the potential offered by the AI is attracting the financial Institutes to try it. With researches showing large signs of progress day by day, we can expect AI to decode these challenges sooner. Shortly, the AI will undoubtedly replace the legacy system and reduce massive costs incorporated with the current system.

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