Not many things in life are certain, but in the financial services industry it’s obvious to all participants that regulators are continually tightening the national and international governance, risk and compliance requirements. The ultimate aim for firms in 2020 is to stay one step ahead of the evolving regulatory regimes. In addition, Brexit now looks set to further shake up the regulatory mix and compliance regulations for those in, or trading with, the United Kingdom.

Regulatory compliance cost banks US$100 billion in 2016

Thomson Reuters’ 2019 Cost of Compliance survey revealed that the main challenges faced by compliance professionals are the increasing regulatory burden, anti-money laundering, sanctions compliance, financial crime, culture and conduct risk and the availability of sufficiently skilled resources. The survey also found that most firms expected more regulatory activity in 2019 with 71% of firms expecting the amount of regulatory information published by regulators and exchanges to increase over the next 12 months (43% slightly more, 28% significantly more).

All of us will have been beneficiaries of the significant and ongoing advances in technology, and compliance has not missed out. For example, it has enabled the semi-automation of previously onerous and labour-intensive KYC and AML requirements. Dealing with these and other regulatory requirements is a massive drain on resources for financial institutions. Bain & Co estimated that governance, risk and compliance spend accounts for 15 – 20% of ‘run the bank cost’ and 40% of ‘change the bank costs.’ Consider also that an average of 45 new regulatory related documents are issued each week, which rather illustrates the continual march of regulatory change.

Wembley calling

This explains why some multinational financial institutions employ as many as 30,000 compliance staff - meaning that the compliance departments across just three of them would be enough to fill Wembley stadium’s 90,000 capacity. In many ways financial organisations face a ‘sword of Damocles’ dilemma: if they don’t continue to implement vast amounts of resource to keep up with the regulators, they risk non-compliance, fines and reputational damage. But there is a way out. With the right technology compliance departments are not damned if they do and damned if they don’t. For example, the harnessing of artificial intelligence means that compliance technology solutions now exist that can reduce the burden of complying with ever changing regulations and cut the cost, time and effort of KYC processes and requirements by up to 90%.

AI automation driving efficiencies

The use of artificial intelligence (AI) along with machine learning, natural language processing and automated reasoning enables AI to drive operational efficiency and productivity and improve client relations, service and compliance. AI solutions are available today that can deliver intelligent search analysis, intelligent data and documents analysis, qualitative risk assessment and automated and enhanced due diligence. It enables the automation of manual and time-consuming work, freeing up staff to concentrate on more productive work. For example, AI can automate searches to identify and verify the individual, collect client information from numerous sources and analyse it for potential risks, thus dramatically speeding up the KYC and customer onboarding research processes. This removes most of the time-consuming pain points for both the financial services firm and its prospective clients – a win for customer experience – while also ensuring both compliance and risk reduction. There are also solutions which automate the Anti-Money Laundering processes.

There is huge demand from financial organisations for KYC/AML and compliance solutions to streamline the sales processes of financial products such as mortgages and credit lending. The opportunity to use AI technology to automate large parts of the currently manual processes for customer data analysis, due diligence and risk management, while also delivering efficiencies and cost reduction, should not be overlooked. Those adopting such solutions can look at a far greater depth and volume of customer engagement data and understand whether it conforms to internal controls and external regulations.