The AI blueprint: Engineering a new era of compliance in digital finance

By Prabhakar Srinivasan, Director – Co-Lead of Artificial Intelligence Practice, Synechron

India stands at the forefront of the digital banking revolution, having some of the highest adoption rates in the world. In fact, the country’s digital banking sector is on a trajectory to hit a staggering $6.83 billion by 2026. The Indian financial sector is a highly regulated landscape where banks and financial institutions are required to adhere to a complex set of legal and compliance requirements. These regulations are continuously evolving and adapting to keep pace with the changing industry needs.

So, one might wonder, is there a way to ensure prompt and accurate action? Welcome to the world of artificial intelligence (AI)!

AI-powered solutions provide immense potential to transform the way banks and financial institutions undertake their compliance processes. Let’s explore the functions where this technology has the potential to transform legal and compliance processes.

AI in action

A report by McKinsey revealed banking being one of the largest sectors with potential opportunities (worth between $200 billion and $340 billion) in advanced AI and GenAI technologies.

We constantly hear about how AI is being used ‘everywhere’ – yet nowhere is its transformative impact felt more, than in the banking sector, where it is currently being harnessed to:

• Leverage AI chatbots: There are many improvements within AI itself, such as the development of Large Language Models (LLMs), Neural Network Computing, democratisation of data, and automation that have contributed to the introduction of AI chatbots in finance. AI-based chatbots offer an alternative method of providing a spectrum of information and solutions to the customer by eliminating or reducing the need for human experts’ intervention.

• Enhance Risk Management: The application of AI in risk management holds immense potential. AI algorithms can analyse large volumes of data and identify subtle patterns and anomalies that human analysts are more likely to overlook this. For banks, AI and GenAI-empowered KYC systems reduce the customer onboarding time and boost policy management that raises red flags for potential risks. AI also improves adherence to IT risk control through automated data integration and analytics.

• Democratise wealth management: In India, due to the staggering increase in high net-worth accounts, wealth management is expected to hit US$565.20bn by 2026. Banks and financial institutions can now offer personalised investment and algorithm-based profile management solutions. Furthermore, GenAI is used to analyse data, summarise reports, and suggest tailored recommendations based on customer profiles.

With AI’s footprint expanding across various facets of banking, it is clear that it can also be a powerful tool for regulation and compliance.

The dynamism of the regulatory environment, along with RBI’s robust oversight underscores the necessity for constant adaptation within the industry. As regulatory compliance requirements continue to evolve, organisations are required to maintain high standards and avoid legal risks. The advent of AI in regulation and compliance provides numerous use cases.

Automating compliance processes:

AI can automate manual and time-consuming processes. For example, more than 2,000 state and local government websites disseminate information and the latest updates about legal and regulatory requisites for businesses. AI and Machine Learning (ML) tools can interpret, consolidate, and categorise these updates based on relevance to keep banks and financial institutions informed on legal and compliance requirements. Furthermore, it is completely digitising compliance documents – such as XBRL filings and other RBI mandate forms and documentation. Hence, automation enhances accuracy, streamlines workflows, and reduces manual intervention and costs.

Predictive analysis:

In the ever-evolving legal and compliance landscape, staying ahead of the curve can potentially save businesses hefty penalties and lawsuits. With natural language processing (NLP) capabilities, AI-driven solutions are instrumental in monitoring and predicting changes in the regulatory system. AI, especially Generative AI (GenAI) takes on an advisory role by identifying potential territories of concern and generating solutions based on business relevance. It is interesting to see the critical insights provided by AI solutions to amplify and improve organisational compliance processes and strategies.

Effective screening and real-time monitoring

AI has the power to streamline compliance-based screenings with accuracy and efficiency. Banks and financial institutions receive multiple alerts and notifications; it becomes a tedious task to filter through them all. AI helps in assessing alerts, identifying patterns, and providing solutions for further action. It assists in swiftly screening customer profiles for fraudulent patterns and anomalies, which is crucial for the mandatory KYC (Know-Your-Customer) process. Furthermore, AI assists in identifying potential money laundering transactions. AI tools also offer real-time monitoring of transactions, flags anomalies or suspicious patterns, and help tackle potential compliance breaches.

Key takeaways

The inclusion of AI in banking and financial operations has brought about numerous benefits, such as enhancing operational capabilities and supporting better decision-making. The Indian financial sector, known for its constantly evolving regulatory landscape, introduces regular updates to ensure compliance and safeguard the interests of stakeholders. Leveraging AI to manage legal and compliance business functions can be a proactive approach for organisations to avoid negative consequences and strengthen their relationships with stakeholders.