Not many things in life are certain, but in the financial services industry it is obvious to all participants that regulators are continually tightening up the rules that govern risk and compliance. The ultimate aim for firms in 2020 is to stay one step ahead of the evolultion of regulatory regimes.

Brexit now promises to shake up the regulatory mixture further, with the prime minister of the United Kingdom envisaging a loose Canadian-style deal with the EU and, at times, an even looser Australian-style deal, with no fear about British financial firms losing their passports that currently allow them to sell funds on the European mainland.

Regulatory compliance cost banks US$100 billion in 2016

Thomson Reuters’ 2019 Cost of Compliance survey revealed that the main challenges faced by compliance people are the increasing burden of regulation in general, anti-money-laundering (AML) and sanctions-related compliance in particular, financial crime, 'culture,' 'conduct risk' and the availability of sufficiently skilled people. The survey also found that most firms expected more regulatory activity, with 71% of them 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 have benefited from significant and continuing advances in technology and compliance has not missed out. New IT has facilitated the semi-automation of previously onerous, expensive and labour-intensive know-your-customer (KYC) and AML jobs. Bain & Co estimated that governance, risk and compliance expenditure accounts for 15–20% of "run the bank cost" and 40% of "change the bank costs." An average of 45 new regulatory documents are issued each week in the United States, adding to the burden.

Wembley calling!

This explains why some multinational financial institutions employ as many as 30,000 compliance staff. This figure tells us that the compliance departments at just three of these behemoths are large enough to fill Wembley Stadium. In many ways financial organisations live under a Sword of Damocles: if they do not continue to spend vast amounts of treasure to keep up with the regulators' ever-changing requirements, they will be fined and suffer damage to their reputations.

There is, however, a way out. With the right technology in place, compliance departments are not "damned if they do and damned if they don’t." Some software harnesses artificial intelligence that can reduce the burden and cut the cost, time and effort of KYC processes and requirements - in some cases by 90%.

Why is AI so efficient?

The use of artificial intelligence (AI) along with machine learning, natural language processing and automated reasoning enables AI to make a bank's operations more efficient and productive and improve its relations with clients, never mind its compliance. AI software is available today that can analyse searches intelligently, analyse data and documents intelligently, assess qualitative risks and perform EDD or "enhanced due diligence." It automates manual and time-consuming work, freeing up staff to concentrate on something more productive. For example, AI can automate searches to identify someone and verify his identity, the source of his funds and the source of his wealth, collect information about him from numerous sources and analyse it to see whether he is a risky proposition, thereby speeding up the KYC and onboarding processes dramatically.

There is a huge demand among financial organisations for KYC/AML/compliance IT that can streamline the way in which they sell financial products such as mortgages and credit lending products. By obtaining this, they can look at a far greater volume of data about customers and determine whether it conforms to their internal controls as well as the diktats of their national regulations.