Harnessing Generative AI for Compliance in Financial Services

By Fabio Ardossi, Partner, Data Reply

The financial services industry is highly regulated, and with the recent reforms in the Financial Services and Markets Act 2023 transforming the post-Brexit financial services landscape, compliance teams have a host of new processes to incorporate into their workflows. These changes necessitate a thorough understanding and integration of updated regulations, increasing the complexity of compliance tasks. While much of the generative AI attention has been focused on image and text generation, the potential of this groundbreaking technology extends beyond artistic expression and holds immense promise for transforming regulatory compliance in the financial services industry. Generative AI can automate complex compliance procedures, enhance the accuracy of regulatory reporting and streamline the management of vast amounts of regulatory data, thereby reducing the burden on compliance teams and enabling them to focus on more strategic activities.

Streamlining processes

Rules governing financial services are vast and found across various sources, such as company handbooks, guidelines from industry regulators, as well as parliamentary and international law. In addition to this spread of rules, constant updates and amendments to existing regulations pose an additional layer of complexity that compliance teams must contend with.

Given the volume, spread, and pace of legal evolution, compliance teams without the necessary advanced technology risk falling behind and facing potential sanctions for non-compliance.

While AI is nothing new for the financial industry, generative AI represents a significant upgrade. Where traditional AI relies on structured data, generative AI models can work with vast amounts of unstructured data formats to sift through policy developments across multiple jurisdictions and update monitoring systems in real time. Streamlining these cumbersome processes, often subject to human error, enables enhanced compliance and improved overall business performance.

Mitigating risk

In a fast-paced industry like finance, the ability to quickly adapt to new rules and regulations can make all the difference in mitigating reputational risk and potential business harm. Generative AI excels in this regard, using its advanced capabilities to “connect the dots” and highlight connections between disparate documents.

In the case of regulator requests, this makes it easier for compliance officers to find exactly which document contains the relevant procedures aligning with new laws. Moreover, it greatly shortens the time taken for creating new internal policy descriptions in response to new regulations. While it’s important to retain human review to double-check for hallucinations, it’s clear that generative AI helps firms become more agile and nimble in the face of regulatory developments, enabling rapid responses to regulator queries and the creation of updated policies.

Improving employee experience

Beyond its technical capabilities, generative AI can greatly enhance the employee experience more broadly. The technology is easily integrated into intuitive chatbot interfaces, empowering even non-technical employees to search and retrieve vital information on regulatory developments in natural language. For instance, an employee can simply ask, “What are the latest changes in the KYC requirements for onboarding new clients?” and benefit from a concise, easy-to-understand summary. This accessibility reduces the learning curve associated with navigating complex regulatory information, making it easier for employees at all levels to stay informed and compliant.

This technology acts as a powerful assistant to domain experts, empowering them to search and navigate complex documents and policies with ease. By streamlining access to critical information, generative AI can significantly reduce the time and effort required for employees to stay up to date with regulatory changes. Additionally, it can help minimise errors and ensure that employees are always working with the most current information. This enhanced capability not only improves individual performance but also contributes to overall organisational efficiency and effectiveness. As a result, employees can focus more on strategic and value-added tasks, leading to a more productive and engaged workforce.

Control and competition

As generative AI continues to evolve at a rapid pace, it’s important that financial services firms looking to take advantage of the opportunity do so within secure, private cloud environments. This strategic approach will help ensure sensitive company and customer data remains within their control, safeguarding against potential breaches and unauthorised access. By maintaining robust security measures within these private cloud infrastructures, firms can protect their critical information while still reaping the numerous benefits of digital transformation. Furthermore, leveraging secure, private cloud environments allows financial institutions to comply with stringent regulatory requirements and industry standards, ensuring that their adoption of generative AI is not only innovative but also responsible and compliant with all relevant legal frameworks.

Generative AI holds immense potential to revolutionise regulatory compliance. By harnessing the power of AI-powered contextual understanding and proactive adaptability, financial institutions can streamline their compliance efforts, mitigate risks, and empower their employees to make informed decisions. By embracing new technology, firms are better placed to not only navigate the complexities of the present but also position themselves for success in the future. Those who invest in generative AI now will be well-equipped to handle the regulatory challenges of tomorrow, ensuring a competitive edge in an increasingly complex and dynamic industry.