Five areas AI could transform compliance and risk management

Offering the potential for unprecedented benefits to businesses globally, artificial intelligence (AI) is poised to become an indispensable tool in the area of risk management and compliance. In a Moody’s study – Navigating the AI landscape: insights from compliance and risk management leaders – 70% of the 550 respondents to our survey said they believe AI will have a transformative or major impact on their functions within the next one to five years.

So, in which tasks, activities, and areas are these transformations most likely to occur, as this could be what drives the adoption of AI as well as the types of AI technology used for each job?

The sweet spot seems to be found when over-stretched teams, lacking resources, intersect with the need to handle and harness vast datasets for risk and compliance processes.

AI can be both adept at augmenting the performance and capability of staff and thriving on vast amounts of data.

However, it goes without saying - AI is not one thing. The right type of AI solution needs to be employed at the right time for the right task to deliver successful outcomes. For example, a GenAI copilot trained on internal and external data could be a useful tool during enhanced due diligence, helping staff investigate cases. Whereas machine learning may be far better suited to ingesting vast datasets, running multiple processes to deduplicate data and understanding its relevancy to provide a curated, filtered view of information during a screening process.

The key in both instances is that the technology is there to enhance efficiency and augment the activity that a professional must ultimately take accountability for. The technology won’t bear the responsibility of each decision, a person will. Risk and compliance professionals can therefore leverage AI within their decision-making process.

In terms of current levels of adoption of AI technologies within compliance and risk management functions, evidence from our study suggests it’s yet to go mainstream. Some sectors are further ahead, notably banking and fintech, with 40% and 36% of respondents respectively saying they had adopted some form of AI within their teams. But almost 90% of all 550 respondents are interested in the integration of AI tools.

Based on the quantitative feedback we received and the qualitative verbatim inputs from AI experts, there are five key areas where AI's power is positioned to be harnessed:

1. Efficiency gains: AI's ability to automate repetitive tasks, such as anti-money laundering (AML) checks, could significantly reduce workloads. This automation will free up human resources, allowing teams to focus on more strategic and complex tasks. For instance, an AI system can sift through millions of data points in real time, something that would take human analysts weeks or even months to perform.
   
   
2. Enhanced risk identification: AI technology can drastically improve risk and compliance monitoring and reporting. AI's machine learning capabilities allow it to identify patterns and anomalies in large datasets, leading to more timely and accurate risk identification. This enables businesses to make informed decisions more quickly, reducing their exposure to risk.
   
   
3. Tighter fraud detection: AI can also be instrumental in reducing fraud, for example impersonation fraud, and enhancing threat detection in cybersecurity. AI algorithms can analyze large quantities of data, identify patterns, and detect anomalies and outliers that might signify fraudulent activity. This helps prevents financial loss and protects businesses from reputational damage.
   
   
4. Cost saving and error reduction: The implementation of AI can lead to significant cost savings. By minimizing errors and irregularities, AI reduces the need for resources to be added to a business as it grows, or as regulatory demands expand. Moreover, AI's fundamental ability to learn from past mistakes and continuously improve could reduce future operational costs, drive ongoing efficiency, and lead to competitive advantage.
   
   
5. Data processing and quality gains: AI technology can undoubtedly revolutionize how data is collected, organized, and analyzed. The issues many organizations have with suboptimal organization of internal data could be solved with AI. Large volumes of data can be processed quickly and accurately, and AI is adept at providing deep and extensive insights that would be hard, if not impossible, for humans to gather and order manually. Having control over data is essentially the cornerstone of successful risk and compliance – ensuring risk is understood, aiding decision making, and answering audits.

In summary, AI technology is set to transform compliance and risk management  tasks, bringing efficiency, enhanced risk identification, tighter fraud detection, cost savings, and improved data processing.

As businesses across the world continue to grapple with expanding data, the drive to do more with less, and an increasingly complex regulatory environment, AI offers a powerful tool to navigate these challenges.