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FinTech 2020

AI is here and compliance needs to respond

photo credit: ICA

Jake Plenderleith

Editorial Manager, ICA

Automation and artificial intelligence (AI) are set to pose a unique challenge to the future workplace, including the compliance profession. How should compliance respond to such innovation?

Handwringing over technology and automation replacing human beings in the workplace has a long history and is far from being unique to our times.

When unveiling his automated assembly line, Henry Ford, instead of praise, was met with distain from workers fearful of losing their jobs. Contemporary concerns on how AI and automation will affect financial services are no different.

Encouraging AI uptake requires staff training

New technology has always generated agitation and speculation on job losses. Such reactions are understandable, if often unwarranted.

The challenge AI and automation represents is not one of making employees surplus to requirements, but in ensuring that staff are trained in using these technologies appropriately and efficiently.

A survey by IBM estimated that, in the next three years, 120 million workers worldwide will need to be reskilled due to the impact of AI.

Similarly, in a 2018 report, PwC claimed employees in financial services may be ‘relatively vulnerable to automation in the shorter term’, due, in part, to workers currently spending a large amount of time doing ‘simple computational tasks’.

Other sectors have successfully adopted AI. The UK Serious Fraud Office (SFO) has employed AI to automate document analysis, and, as part of its 2018 case against Rolls-Royce, used a ‘robo-lawyer’ to scan documents for legal professional privilege content, which was 2,000 times faster than human lawyers.

AI within Financial services

AI is already here, and spreading. In September 2019, HSBC announced a new transaction monitoring tool, which used network intelligence and automated contextual monitoring in its trade finance division. The bank also rolled out a financial crime transaction monitoring tool to identify commercial opportunities. The tool was designed to highlight ‘red flags’ of potentially unusual activity and ‘green flags’ for new business.

In fact, AI has long infiltrated the most commonplace areas of our lives, from Netflix recommendations to Gmail email filtering. In these simple instances, little justification for AI’s decisions is needed.

But, as AI is employed in more complex processes in financial services, the rationale behind its decisions must be understood.

Financial services staff should, for instance, be able to justify a loan request rejection by AI to a customer. The UK’s Financial Conduct Authority (FCA) recommend ‘sufficient’ explainability for AI’s outcomes as the target.

Compliance professionals will need to upskill

The financial crisis of 2007–08 and the increased focus (and enforcement) from regulators on financial crime risk saw a bump in resources in compliance teams around the world.

Given the impact of COVID-19, firms will likely look to optimise resources; this could include using new technology to automate manual processes.

Compliance professionals will need to adapt and upskill. People will continue to be needed, but the types of jobs they perform will evolve. As a necessity, then, compliance staff must remain in-step with developing tech.

In its 2018 report on automation, PwC outlined that employees without a higher-education are those most at risk to automation and AI, demonstrating the need for life-long learning from compliance professionals.

These should include soft skills – a skillset highly sought after and one that, crucially, AI cannot replicate.

Compliance professionals need to be open minded about the use of new technology and the potential for it to benefit both the control framework and the wider business.

The future compliance professional must be commercially savvy and collaborate with colleagues and even robots, to meet business goals. This requires being open to innovation and adapting to change.

AI will not replace the compliance function but its impact at the manual level will be significant. It’s important compliance professionals respond to this shift so that they are best equipped to use AI to benefit of the compliance function and their business.

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