AI is Helping Transform Regulation and Compliance in the Finance Industry

Main visual : AI is Helping Transform Regulation and Compliance in the Finance Industry

The marriage of finance and technology, better known as fintech, is starting to transform the financial industry. But so far, we are just at the start of the revolution … the effects will continue to be felt, as banks continue to invest billions of dollars into technology. As they do so, there’s a hot new subset of fintech that is emerging and that will command some of this expenditure – this time it’s called regtech – which essentially is all about the use of cutting edge technology to address regulatory challenges.

Regtech has much in common with fintech – both are founded on agile methods of development, coupled with cloud and analytics technologies – but regtech is applied to a more specific space – that of compliance and regulation.

One significant difference is the motivation for their deployment: The driving force behind the significant venture capital investment in fintech was a consumer desire to disrupt financial services institutions to deliver better customer experience. Regtech, on the other hand, has been born out of a need for banks to pay more attention to compliance, following the heavy fines that were levied after the 2008 credit crisis.

Overwhelmed by demanding new regulations, financial institutions today are leveraging technology to help provide regulators with the data they need – better, faster, cheaper and more securely than ever before. Regtech is also helping these large financial institutions save money, for example by automating compliance-based business processes to improve productivity and by enhancing fraud detection.

To enhance their ability to identify fraud, one of the technologies being deployed in regtech is artificial intelligence (AI), which is becoming popular due to its ability to identify connections in otherwise unrelated sets of data. Fujitsu is currently working closely with some of its financial services customers to co-create solutions in this space, leveraging the powerful capabilities of the Fujitsu AI Zinrai platform. While traditional systems could only search siloed systems, today’s technology means that multiple data sources, containing both structured and unstructured data, can be searched – and this delivers a new level of insight.

Machine learning analyzes complex patterns across diverse data-sets to identify anomalies, helping identify possible fraud. AI Zinrai’s algorithms perform rapid but complex searches across multiple data sets, while simultaneously assessing patterns in unrelated data sources which might, for example, relate to stock market prices, news sites or social platforms. The output is delivering new insight into what were previously unrecognizable links and correlations between data.

For example, a financial services trading database logs hundreds of thousands of trading transactions per week. AI Zinrai can analyze this data and compare it to completely unrelated inputs, such as activity on social media platforms. By cross-matching the data, we can better understand if any specific behavior – for example, posts on Twitter or Facebook – have any bearing on these trades. Then, by connecting this data set to public news sites and movements of the stock market, we can understand the ripple effect that a trading anomaly can easily propagate. As with most things in life, there is a cause and an effect. The beauty of AI in regtech allows us to separate the ‘effect’ much more easily from the initial ‘cause’.

This type of deployment is still just scratching the surface of the potential of regtech. It is an emerging field where innovations will continue to bring down the cost of compliance. Ultimately, regtech will improve transparency and compliance in financial institutions and help protect against fraud.

While not a primary motivating factor, customers will also benefit from banking platforms and back-office systems becoming increasingly robust and able to protect financial information against attack. And as the deployment of AI continues, customers will benefit from improvements in customer identity management (for example, by means of biometric or signature recognition) and the reduction of fraudulent transaction.

That’s why regtech should be of interest – because ultimately it will make everyone’s interactions with financial institutions more secure and trustworthy than ever. In the future, people will be able to confidently say that they truly trust their bank.