By Yashoda Fezah, General Manager, CASS (Compliance Administration and Support Services Ltd)
Organisations face significant challenges in keeping up with regulatory changes, which require substantial resources and expertise. At the same time, traditional methods of regulatory change management are often manual, slow, and resource-intensive, struggling to keep pace with the constant evolution of regulations.
According to a whitepaper by GRC 20/20 Research, the number of regulatory updates has more than doubled over the past five years, while organisational capabilities to manage these changes have stagnated. Meanwhile, the costs of non-compliance are increasing, especially in sophisticated sectors such as financial services.
LexisNexis® Risk Solutions’ latest True Cost of Financial Crime Compliance Study released in March 2024 finds that financial crime compliance costs increased for 98% of financial institutions in APAC in 2023. The total cost of financial crime compliance in the APAC study countries has reached US$45 billion. In other findings from the study, 75% of surveyed institutions highlighted labour expenses as a key cost driver. This underlines the need for investment in highly qualified compliance professionals to effectively address and fulfil stringent compliance requirements.
Meanwhile, Thomson Reuters echoes these concerns in a study which notes that the top five compliance challenges are: the volume and implementation of regulatory change; limited budget and resources; lack of skilled professionals; the need for effective compliance monitoring; and cyber resilience.
Given the ever-evolving regulatory landscape, the increased compliance costs, and the potential impact on corporate governance, board members and directors must have access to regulatory expertise, whether in-house or outsourced, and be aware of regulatory changes, both at home and overseas. It is here that RegTech tools powered by AI offer a robust solution.
RegTech harnesses the power of technology to transform risk management and regulatory compliance. By adopting RegTech solutions, compliance teams can stay ahead of regulatory changes, automate tedious manual tasks, boost operational efficiency, and track updates to rules and regulations in real time. Looking ahead, the integration of artificial intelligence with RegTech unlocks potential that was previously unattainable with human resources alone. While RegTech enhances efficiency, AI opens entirely new horizons—empowering organizations to predict trends, uncover deeper insights, and navigate the regulatory landscape with unprecedented precision and agility.
HOW AI ENHANCES REGULATORY CHANGE MANAGEMENT
Artificial Intelligence (AI) is redefining regulatory monitoring and compliance with advanced capabilities such as:
- Automated Monitoring: AI algorithms scan regulatory sources in real time, filtering out irrelevant data and prioritising critical updates based on organisational needs.
- Predictive Analysis: Machine learning forecasts the impact of regulatory changes, enabling proactive strategic decisions.
- Workflow Automation: AI automates compliance workflows by notifying stakeholders, initiating process updates, and ensuring timely responses.
- Behavioural Analytics: Continuous learning models track customer behavior to detect anomalies like unexpected large transactions or unusual patterns, enabling early detection of financial crimes.
- Enhanced Transaction Monitoring: AI analyses vast transaction data to identify patterns and anomalies linked to financial crimes, reducing false positives, prioritising risks, and uncovering hidden connections.
- Smarter Suspicious Transaction Reporting (STR): Algorithms suggest relevant cases for reporting and assist in drafting STRs, reducing manual effort and improving speed and accuracy.
- Integrated Risk Assessment: AI incorporates regulatory compliance into broader risk strategies by analysing the interplay between regulatory changes and operational risks.
By enhancing efficiency and enabling insights previously unattainable, AI is revolutionising regulatory change management with unmatched precision and foresight.
The benefits of these interventions can be transformative, helping organisations manage costs and use scarce compliance resources more effectively.
- Beyond human limits: AI-powered RegTech achieves what human resources alone cannot. By analysing historical data, AI predicts potential compliance issues before they arise, allowing businesses to prevent violations rather than react to them. This shifts regulatory reporting from a retrospective exercise to a proactive, preventive process, fundamentally transforming compliance management. Achieving this foresight without AI would be nearly impossible, regardless of budget or team size.
- Lower costs, higher efficiency: AI automates repetitive tasks like regulatory research and data gathering, performing them faster and more accurately than humans. This reduces compliance costs while enabling teams to focus on strategic activities like decision-making and policy refinement. By streamlining monitoring, AI saves time and resources, making compliance efforts significantly more efficient.
- Greater accuracy: With machine learning and advanced analytics, AI-powered RegTech delivers highly precise compliance risk assessments. It identifies trends and anomalies often missed by traditional methods, ensuring no risk is overlooked. This enhanced accuracy boosts confidence among compliance officers, particularly as rising personal liabilities deter professionals from joining or staying in the field, according to Thomson Reuters.
- Levelling the playing field: RegTech democratises access to advanced compliance technologies, enabling smaller firms to meet high standards previously achievable only by larger enterprises. By simplifying regulatory adherence and improving process efficiency, AI-powered solutions allow smaller organisations to compete effectively while maintaining quality service and better tracking critical client information.
- Stronger audit trails: AI tools create real-time, auditable records of all compliance activities, meeting demands for transparency and accountability. Every search or action is logged, enabling compliance teams to demonstrate adherence during audits or regulatory scrutiny. These robust trails enhance trust while simplifying regulatory reviews.
THE FUTURE OF REGULATORY CHANGE MANAGEMENT
The proof of the effectiveness of RegTech solutions driven by AI lies in the adoption of such solutions by public sector authorities in advanced jurisdictions. In April 2024, the City of London Corporation launched a RegTech platform in partnership with Innovate Finance, the trade association for RegTech. The platform seeks to enhance the understanding and deployment of regulatory technology to improve compliance efficiency and cope with evolving global financial crime regulations.
Advances in data science, machine learning and cloud computing now mean that RegTech can not only read but understand regulatory developments in context. As it understands information in context, it can identify individuals, content and potential threats with few to no false positives. It can explain how information is relevant to specific cases, and show the evolution of this information in real time.
The power of AI-driven RegTech lies in the ability of such systems to continually learn and update based on new data, changes in regulations, and emerging threats. By adopting AI-powered regulatory change management solutions, organisations can optimise their regulatory change management processes, making them more efficient, effective, resilient, and agile.
References:
GRC 20/20 Whitepaper ‘Delivering the A.I. Enabled Regulatory Change Lifecycle’
https://www.lebow.drexel.edu/news/leading-through-complexity-evolving-global-regulatory-environmenthttps://www.prnewswire.com/apac/news-releases/study-reveals-annual-cost-of-financial-crime-compliance-totals-45-billion-in-asia-pacific-302080638.html
