Home Slider The Role of Artificial Intelligence in Compliance and Security Oversight

The Role of Artificial Intelligence in Compliance and Security Oversight

by internationalbanker

By Shiran Weitzman, CEO, Shield





Compliance has always played a pivotal role across financial firms and banking institutions in an effort to pinpoint and mitigate various risks across communication channels, including market abuse, insider trading, spoofing, front-running, and even sexual harassment and racism. For decades, legacy vendors have been at the forefront of providing services to these institutions to flag and report any compliance and security breaches. This process was typically done manually where the compliance team would sift through emails and phone records and flag anything that appeared nefarious. While somewhat tedious, these compliance measures have helped institutions maintain industry wide standards and regulations as well as their own internal standards for employee conduct. 

However, over time technology has evolved and has now become a mainstay across all industries, including banking and finance, offering support and assistance to organizations and institutions, making them more effective and efficient in their daily operations. More specifically, artificial intelligence has provided the banking and finance industries with comprehensive compliance tools that automate the process. While these measures can be implemented to make compliance and security oversight easier, it does come with its share of challenges including regulator hesitancy which stems from historical concerns regarding bias, discrimination, and privacy, which has now ultimately led to some calling for policymakers to introduce overly burdensome regulations on the technology. Nonetheless, the adoption of artificial intelligence will continue to grow, as it’s already demonstrated immense value playing a significant role in the future of banking and finance.

Concerns over AI and the Potential to Regulate

Artificial intelligence has proved and continues to prove itself to be one of the most valued assets, across all industries, that enables companies to rapidly evolve and conduct their business more effectively and efficiently. However, it does bring with it criticism and concern in which regulators and skeptics are asking the question, “can artificial intelligence be transparent? Can we trust it?” There have been reports of bias, discrimination, invasiveness to private data and violations of human rights, which has led the European Union to propose the Artificial Intelligence Act which will aim to impose restrictions on artificial intelligence in an effort to regulate the technology and eliminate these instances. While the law would impact all industries, there would be a particular focus on high-impact sectors which includes both the banking and finance industries. 

While these regulations seem to have the public’s best interest and values in mind, it also proposes an impractical solution, especially if other countries seek to implement them. According to the Center for Data Innovation, these new regulations would cost the European economy more than $30 million to introduce and manage. Should policymakers enact these regulations, they would ultimately spend more on regulating the technology than the cost of compliance itself, making it illogical. The banking and finance industries have already seen artificial intelligence at work and have reaped the benefits and any service less than what they’re accustomed to would be a setback. 

One of the major concerns from a technology standpoint is that artificial intelligence relies on what is referred to as the “black box”, which means regulators are able to see what goes into the AI and what comes out but are unable to see how the algorithms and technology actually works. Tech companies are hesitant to share their algorithms – what’s inside the black box – because it can lead to potential intellectual property infringement and theft. While the European Union continues to push for some type of reform, it is important they realize that they need to work directly with tech companies to implement risk management solutions that provide thorough training and regular testing to offer protections against biases. 

Communication in Today’s Digital and Remote Work Environment

Over the last few decades, there has been a steady stream of new communication methods that have surfaced including SMS, Slack, WhatsApp, etc. As these new channels have become dominant in the way we communicate daily in both our personal and professional lives, it has become harder and nearly impossible for compliance teams to provide security oversight and carry out thorough reviews and investigations. In 2020, financial organizations saw an increase of 54% in tickets coming in through WhatsApp. While new communication channels are making it easier and are being more heavily relied on to communicate, it’s also indirectly creating opportunities for security and compliance breaches. 

These new channels alone call for the use of artificial intelligence to make compliance more effective and efficient. However, with the new workplace environment where many are working outside of the office and from home, it is even more critical for banking and financial institutions to find a better way to maintain compliance regulations. With a dire need to address compliance across all communication channels, many are turning to artificial intelligence as a solution as it provides automated compliance and security oversight that is more advanced and tech-driven especially when communicating over encrypted messaging services. This ultimately will provide banks with a valuable resource that allows employees to continue using messaging apps and services that are in line with privacy laws like GDPR, ensuring separation between personal and business data. 

AI’s Value to Compliance in the Banking and Finance Industries

Financial institutions have struggled with communication storage and while still new to the industry, artificial intelligence provides the support and solution to overcome. Artificial intelligence enables compliance officers and institutions the ability to automate all elements of their communications data management. This includes capturing data, enriching it with third party data such as CRM, normalizing it and allowing the compliance officer the ability to seamlessly investigate, archive and retain data. Under regulatory rules, there is an immense amount of both structured and unstructured data which is required for recordkeeping. Additionally, artificial intelligence can combine all data sources which in turn makes advanced searches and the ability to perform full investigations more efficiently. 

In addition to the previously mentioned capabilities, artificial intelligence is revolutionizing financial compliance and redefining the way in which communications compliance risk is managed. Financial institutions are able to mitigate risk, improve operational efficiency, and reduce compliance costs by being afforded the ability to proactively detect and alert on abnormalities in communication including threats or violations such as insider trading, providing an in-depth analysis and breakdown of various communication triggers, and offering the ability to manage and customize alerts based on their specific needs, regulations, and procedures. 

Implementing Artificial Intelligence Responsibly

For any organizations or institutions that decide to implement artificial intelligence for compliance purposes, it is incredibly important that it is done so responsibly. It is critical that banking and finance organizations work with companies who can fulfill their internal needs as well as meet industry standards and regulations. With much discussion around transparency, it is key to ensure the ability to separate personal data from professional data, conduct business without the consequences of bias and discrimination, and offer data that is easily interpreted and explained by compliance team members. These capabilities are readily available and continue to be top of mind when creating and developing new artificial intelligence models and algorithms.    

Compliance and security measures are in place to keep our businesses and employees safe and protected from various risks and market abuse. The fact of the matter is that the old way of doing things just can’t keep up and is no longer an effective process. 

While trust from regulators, or lack thereof, continues to play a role in the acceptance of artificial intelligence, it will not prevent companies from adoption and implementation as long as new opportunities continue to arise to mitigate risk, cut compliance costs, and increase operational efficiency. Artificial intelligence is only going to continue to develop and evolve, leaving banking and financial institutions to get on board to keep up with the fast pace of communication and do their due diligence in following regulations. The alternative? Continue to rely on outdated legacy vendors and risk failing to maintain industry wide regulations. Artificial intelligence can and will drastically improve compliance and security oversight.


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