Harnessing the power of Artificial Intelligence for regulatory compliance

Financial institutions are turning to technology to help ease their regulatory burden.

Firms are looking for technological solutions to make everything from back office processing, to Know Your Customer, to delivering financial advice more efficient, FundForum Asia heard.

Tanja Van Sterthem, global market manager funds at Swift, said financial services companies had seen a significant increase in regulatory requirements since the Global Financial Crisis.

She said: “There is a plethora of regulation that companies and investment firms are being hit with. There is a never-ending list that people have to deal with.”

Philippe El-Asmar, CEO of Amareos, agreed: “The costs are going up and they have been going up steadily since 2008.”

Unsurprisingly, companies are hoping technology can help them manage the growing regulatory burden, and one area that is ripe for innovation is the back office.

Arisa Siong, head of innovation at Marvelstone Group, said: “The engine of financial institutions is the middle and back office, that is where most of the compliance happens.

“If you can do more of your day-to-day work digitally, you can then automate it. If you can automate then the benefits that the technological revolution brings suddenly become very real.”

El-Asmar agreed: “To the extent that the task being done by the back office is repetitive, you can have a machine do it better than an individual,” he said.

He added that Know Your Customer (KYC) and customer onboarding was one of the biggest regulatory costs companies faced, while the processes remained very manual and labour intensive.

“Every institution has an army of people in the back office who are onboarding clients,” he said.

“We have a lot of technology that can allows us to industrialise this process but unfortunately it is not being used.”

He added that new technology such as retina scans, finger prints or even voice recognition could be used to help create a more reliable source for KYC.

But he said financial institutions were not making use of the technology and were instead sticking with their existing legacy systems and manual processing, when what was needed was a “single golden source” that everyone relied on.

“I think that is a shame because it is probably the area where technology has the most to offer, but where financial institutions have not relied on that technology, and one of the reasons is that the regulator is not allowing them to outsource this,” El-Asmar said.

A golden source of data

Siong said in Singapore the government was working to create a golden source of data for personal information based on the national identity system.

The data source would be centralised and banks would be able to plug into it.

“The first stage is just your personal identity but just imagine you will be able to lay biometrics on to it down the line,” she said.

“If you start thinking how you can move data from being bilateral to multilateral, then you can create centralised platforms and overlay machine automation on top of that.”

She added that this would provide a fundamental building block in the tech revolution to improve efficiency in compliance.

Another key application of technology in the financial services space is robo-advice.

Paul Resnik, co-founder and director of Finametrica, explained there were two algorithms for giving advice, one for the investment part and one for the suitability part.

He said the best place to apply the process was to suitability, as if you had satisfied customers they would stay with you for longer.

“Suitability is the single biggest area of complaint around the world, but because it is difficult it tends to get left out,” he said.

“When we start to apply artificial intelligence to professional judgement that is where the application will come in.”

He added: “We can build an algorithm that takes into account age, time horizon, capacity for loss, capital market assumptions, that is all capable of being done.”

But he suggested it was more difficult for an algorithm to prioritise those factors or know that between a husband and wife the financial goals may be different.

El-Asmar emphasised that the needs of the customer should not be forgotten: “The technology behind robo-advice is not about outperforming the market, but it is more about a customer experience,” he said.

The Human touch

Asked if human interaction was the missing component in robo-advice, the panellists agreed.

Jonathan Ha, CEO of Red Pulse, who was moderating the session, said: “Having someone who explains what is being done to the end investor is critically important. “Apart from in Silicon Valley, everyone else in the world is more used to a relationship-based service.”

El-Asmar agreed: “Technology is not here to replace human interaction but as a supplement to help humans do their job better.

“It is a tool that supports not substitutes. It improves the customer experience,” he said.