Regulatory change – maintaining compliance using AI & tech

All businesses are susceptible to changes in enforced rules and regulations. From financial institutions to utility companies, failure to keep up with legislative and regulatory changes can lead to fines, reputational damage or even an inability to trade. There are already a variety of technologies being used by businesses to streamline regulatory compliance, particularly in the financial sector. However, some of these legacy technologies do little to help businesses to keep up to date with their regulatory compliance commitments. While it has long been recognized that the solution to a better managed regulatory compliance system will involve digital technology, it is the rise of artificial intelligence and machine learning that is causing the most disruption and the most potential benefits.

Inefficient Regulatory Management

All business models that are reliant on adherence to regulations often find it very challenging to keep up to date when changes occur. It can take a lot of working hours to navigate and then interpret the changes that affect a company, and the resulting actions to meet legislative obligations. Currently, the trend is to outsource this task to a third-party business that specializes in regulatory compliance, but this generally means that relevant regulations are simply identified and passed onto the business. Those regulations then need to be examined, codified and implemented alongside the business’s reporting structure. The problem is that these are often done manually by humans, and that means exposure to the risk of inconsistent and interpretive differences. This is proving inefficient in the face of growing regulatory legislation across a huge swathe of sectors.

RegTech as Solution

Regulatory Technology (RegTech) has proven to offer many advantages over human responses to regulatory changes. AI, in particular, is proving vital, primarily because it can be easily integrated into a company’s existing compliance system while offering improved regulation scanning and analysis.

This creates a more uniform, universal interpretation of those regulations that can then be more easily tackled.

The use of AI is leading the charge of regulatory change solutions and benefiting businesses in the process. Sections of new regulations can be identified and automatically sent to the relevant departments of a company for immediate implementation. This more streamlined and error-free approach offers obvious advantages in terms of business security and customer protection.

Advantages of Intelligent Regulation

There are common issues and difficulties that compliance officers need to tackle on a regular basis. AI is proving invaluable simply because it can streamline the entire process. AI turns a difficult task into one that is both more efficient, more effective, and more accurate. No matter the industry, there seems to be an almost endless number of potential benefits to AI adoption, but in terms of compliance, there are three specific areas where the benefits are clear. These are:

  • Tackling False Positives: One of the main areas of concern for businesses that rely on compliance is the high rate of false positives. Automated compliance alert systems can be useful, but they often make errors by identifying regulatory changes that aren’t relevant to the business. This means that all flagged compliance changes still need to be manually checked. This leaves room for human error. Artificial Intelligence systems can identify and capture, then analyze and filter all of the data elements that are relevant to a business. This offers obvious immediate cost benefits, with fewer hours wasted on manual processes.
  • Cost-Cutting: While tackling false positives offers obvious benefits in terms of cutting working hours in the identification stage, AI also allows access to automation that reduces business management costs even further. Many of the manual processes involved in compliance can now be circumvented through the use of AI. By automating workflow, businesses are then able to spend less time (and expensive human capital) at all stages of the compliance structure. With improved accuracy and less spending, businesses can better ensure that they are compliant while making significant savings. For companies with large compliance teams, such as those in the financial sector, this can quickly lead to savings in the millions.
  • Fewer Errors: Human error costs businesses billions every year. Whether it’s lax due diligence, the use of legacy technology, or a process that is less than efficient, those costs need to be minimized as much as possible. The challenge before the rise of AI has been that there are simply so many regulatory changes that it can be very hard to keep up with without making mistakes due to human error. Regulatory compliance is increasingly transitioning to a more technology-driven sector. This means that AI is well-placed to tackle the incredibly high volume of compliance information and bundle it into easy to manage and relevant information for businesses to adapt to.

While the human factor is still an important part of the compliance sector, it is rapidly becoming the final step in the compliance process. As AI continues to improve, its applications seem endless. For compliance officers and the businesses that depend on them, AI looks set to be a shift in thinking and in business development that will inevitably cause immense disruption.

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