A recent regtech pilot by the Commonwealth Bank of Australia (CBA) used a solution with natural language processing (NLP) and artificial intelligence (AI) capabilities. It converted the text of 1.5 million paragraphs in Markets in Financial Instruments Directive II (MiFID II) into compliance obligations. The experiment was completed with 95% accuracy and took merely two-weeks to complete as against 24 weeks when done manually. CBA worked with ING, the Netherlands and the UK’s Financial Conduct Authority (FCA) and used a solution by Ascent Technologies. This experiment indicates the potential for technology enabled regulatory framework, and is only one of the several experiments that regulators and companies across the world are conducting to explore the use of advanced technologies for regulatory compliance.
In Frost & Sullivan’s recent global survey of end-users in the banking, financial services and insurance industry (BFSI), respondents identified Artificial Intelligence (AI) and Data analytics as two of the top three most critical investments for their organization’s digital transformation success over the next 5 years. Advanced technologies such as AI, machine learning (ML), data analytics and Blockchain are expected to play a significant role that goes beyond automation. Adaptive algorithms will be able to undertake activities such as predictive analytics, interpreting new regulations, and real-time reporting.
Game Changing Capabilities of Advanced Technologies
A recent survey of senior personnel from financial companies by Baker McKenzie revealed the growing understanding and acceptance for advanced technologies. About 49% of the executives mentioned that they expected their firms to start using AI-enabled solutions for risk assessment within the next three years. About 29% of the respondents expected their firms to apply AI to know more about their clients and to prevent money laundering.
Traditional banks possess huge amount of data. To manage all of this data – structured and unstructured, existing and continuously streaming, and to meet regulatory deadlines, companies need solutions that can go beyond automating processes. RegBot® is a virtual regulatory compliance tool by BLXLaw, Ireland that can be integrated into business workflows. It uses proprietary algorithms to fulfill various regulatory tasks and requirements, and aid decision making. According to the company the RegBot goes beyond chatting and performs a host of tasks such as automatic classification of clients, notifications, and pre-assessment. The company has already launched a bot to manage Markets in Financial Instruments Directive (MiFID II) requirements and all its bots are General Data Protection Regulation (GDPR) compliant.
Financial institutions spend millions of dollars to address the gaps in their compliance processes. According to a 2017 Duff & Phelps survey of senior executives, they expect 10% of revenue to be spent on compliance by 2022. As companies increased investments in compliance systems, they also ended up with an extremely siloed structure. The lack of interoperability, agility and scalability is a challenge. IBM Watson Regulatory Compliance (WRC) seeks to change this approach with its award winning innovations. WRC uses raw data from papers and website to convert it into a searchable and recognized schema. Following it up with cognitive and analytic processing, it enables its clients to use a single channel to manage regulatory obligations and controls using search, natural language and other tools.
Integration of Advanced Technologies is inherent to regtech’s Success
In addition to the significant regulatory changes such as MiFiD II and GDPR expected to impact the financial services industry, there are many other smaller changes that take place every day. According to Thomson Reuters, as many as 250 regulatory changes and developments occur every day. Manual monitoring or one time updates to existing software in this scenario is not a viable option. Gecko Governance, Ireland is a Blockchain based solution that offers a host of benefits. These include verifiable audit trail, global compliance, and a real-time dashboard. The regtech fund management regulatory solution uses a dashboard to schedule, manage and monitor the regulatory and compliance requirements in real-time.
To maximize the benefits from regtech solutions, they need to be made future proof. To further facilitate this, forward looking regulators such as the Financial Conduct Authority (FCA), UK are also exploring the option of converting their own rule books into digital repositories. Corlytics, a regulatory risk intelligence solutions provider from Dublin, Ireland, has helped the FCA convert its regulatory handbook from an online textbook to an intelligent handbook.
Companies invest millions in compliance and the trend is not likely to reverse anytime soon. Advanced technologies in regtech solutions will create an invisible layer that companies will increasingly rely upon. The high accuracy, data analytics, single dashboard, alerts and insights will allow companies to optimize resources allocated to compliance and achieve better outcomes.