Will AI Positively Help The Financial Risk Industry?

The rising demand for financial services continues to push stricter KYC and AML compliance. The financial services industry is moving fast, and risk management teams work hard to stay on top. It’s a continuous battle to give consumers what they want and meet the regulators’ requirements. 

What’s happening right now, and will AI impact the future? 

Planet Compliance spoke with William Cadenilla, Vice President of the Client Activity Review & Assessment function of CLM & KYC at the Investment Bank (IB), to get his specialist insight. William co-manages the team at IB and works in the first line of defense (1LOD). 

Dealing with AML Regulations and KYC Checks

Whenever a new AML directive comes along, organizations are obliged to stay up to date with these regulatory changes. Concerning the 4th, 5th, and 6th AMLD directives, William said, “Our group has proactively aligned policies with the scope required by current regulations.”

Planet Compliance was also curious to know how he stays up-to-date with changing regulatory requirements. It is, of course, a necessity, but many businesses do not use automated solutions. William explained, “I simply use Google and search for news and advisories 2-3x a day. I do this almost every day

A Clear System for KYC Verification

The importance of KYC checks is paramount for any business. Financial criminals have become far more daring. In fact, they treat it as a profession themselves in their own way. This high-level potential threat means KYC verification has to be second to none. We asked William how his team proactively manages this daily.

We have “verifiers” reviewing the work produced by KYC on-boarders in the 1LOD for all clients regardless of risk rating. These verifiers act as supervisors on the same team. This is followed by additional work of other “verifiers” in the 2LOD (Compliance) — however, the scope of clients covered by the 2LOD is limited to high-risk clients only.”

According to a survey by McKinsey in 2021, banks typically employ 10% of their workforce in financial crime-related activities. This workforce is essential. William’s team follows a detailed process that has been finely tuned. It helps to protect all parties involved in every transaction.

The Future of AI in the Financial Risk Industry

Many people are excited about the evolution of AI and how this could impact financial services. But there may be different things to consider if you work in the financial services industry. Is AI a threat or an opportunity for the future of risk management? It’s a serious question that may take time to answer correctly. 

However, there are some clear benefits from using AI:

  • When working with data quality, you can use AI solutions for AML and anti-fraud activities. It can help screen all transactions and monitor external risk factors to manage financial threat signals.
  • Stress testing can also benefit from AI solutions. The ability to analyze the balance sheet resilience of a company can make a huge difference. AI can assist with building complex simulation models and working through hypothetical scenarios.
  • Early warning systems can give incredible insight to bankers that deal with credit risk management. AI technology increases real-time processing and analysis of internal and external factors that can affect risk, such as financial, geographic, behavioral, etc.

I asked William how he felt AI technology would affect the financial risk industry. He said, “AI is promising, but it’s still in the infancy stages. AI does have the potential of speeding up the way we identify and evidence financial crime risks, but assessments and decisions will still have to be made at the “human” level.” 

William confirms that there are benefits to be gained from using AI, but note William’s words of caution. Final assessments and decisions still need to be made by humans. After all, there must be a degree of control that does not rely solely on technology. In the future, this will change, but for now, it is a necessary process.

Expected Trends In The Coming Years

With constant changes in laws and regulations, organizations need to stay sharp and adapt along the way. Thankfully, the technology on offer worldwide is keeping pace with regulators’ requirements. This continual technical advancement has risen sharply due to the digitization during the pandemic. 

At Planet Compliance, we are always looking for trends in the financial services industry. We asked William what trends he expects to see impacting the industry in the next few years. He highlighted two distinct areas where he foresees significant movement in the industry. 

The use and development of robotic process automation for process functions will increase. Also, “onshore” return of jobs from offshore locations. Yes, the latter has already started happening.” 

There are many benefits of financial services using robotic process automation (RPA). Here are some of the main ones:

  • Cost and time savings
  • Reduction of human error
  • Scalability (robots can perform tasks at speeds unmatched by humans)

Account opening is an example where RPA can help in banking. This process is notorious for being repetitive and time-consuming. Additionally, RPA can also help improve the quality and integrity of data, which can benefit relations with regulators.  

William’s second point about offshore jobs returning onshore is already happening. This trend will help institutions be more efficient as financial demands increase. Also, after the initial transition, it will help them save more costs. Westpac has already brought back 1,000 jobs to Australia. This trend can also be seen in recruitment, hiring local talent.

In Summary

The next few years will be exciting for the industry as more areas become automated and processes become quicker. AI and humans will work more closely than ever before. Will there come a day when organizations will let AI handle it independently? Probably not right now, but maybe ten years in the future will be another story altogether. 

It was great to get an insider perspective from William Cadenilla, and Planet Compliance thanks him for his insight and valuable time. 

If you would also like to share your expert thoughts and ideas with the world, please get in touch with us with your topic, and we will be in touch. We can’t wait to hear from you and find out more about what you think!

Sally Leslie

Sally creates B2B content for businesses, entrepreneurs, and startups. She has a PR degree and a background in business development and sales. She is passionate about motivation, time management, and the changing world of financial technology.

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

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