Whether they’re leading change or resisting it, compliance and risk professionals — and everybody else, for that matter — simply can’t ignore the impact of AI. Keith Berry of Moody’s Analytics explains his organization’s recent survey findings but cautions that strong foundations are necessary to avoid AI hallucinations.
As chatter grows among business leaders and government officials imagining both the possibilities and risks associated with AI, the compliance industry is ripe for transformation. At Moody’s Analytics, we’ve deployed AI since the late 2000s in our Know Your Customer (KYC) screening process to reduce false positives, resulting in up to 80% of Level 1 investigation and triage happening instantly and accurately. Now, our recent study, which surveyed more than 550 senior compliance and risk management professionals globally, found that 83% of respondents expected widespread adoption of AI in risk and compliance within the next five years, and 82% believe AI will deliver significant advantages to the industry.
Despite this, only one-quarter (26%) report having high or very high knowledge of the relevance of AI to risk management and compliance. While just one in three organizations are actively using or trialing AI in compliance and risk management with data analysis and interpretation (63%), risk management (53%) and fraud detection (51%) being the top three areas where AI is being applied. The banking and fintech sectors are leading the charge with 40% and 36%, respectively, using or trialing AI, while insurance, asset and wealth management are playing catchup with only 14% engaging with AI. For the industry writ large, significant barriers to entry remain, including poor internal data quality, a specialist knowledge gap and a lack of clarity surrounding regulation.
Process efficiencies are a good jumping off point for AI adoption, but the industry must push further to realize the full benefits of the technology, including advanced data analytics, accurate predictions and data scalability. Akin to a winning round of Jenga, the foundation is paramount. Only 14% of the compliance and risk professionals surveyed rated their own data as high quality, but resolving data issues is vital to reducing large language models hallucinations, where the AI output is coherent but incorrect, and improving the overall output accuracy. Data is so often at the heart of risk and compliance, and poor internal data could pose a barrier for many organizations navigating the AI technology landscape.
Early adopters of a variety of AI types are more likely to rate their data quality as high (36%), compared to 9% who are not currently considering the use of AI. There is a clear data maturity gap, with 75% who are not contemplating the adoption of AI considering their data quality to be poor. The overall outlook for AI and compliance is strong but only if businesses acquire the right expertise and data to fully capitalize on the opportunity at hand.
The study also highlights the importance AI experts and risk and compliance leaders place on regulation in this space. There’s 79% consensus that new legislation regarding AI is important to the profession, while 66% seek greater clarity around any existing AI-related regulations impacting the industry. Despite this yearning, only 15% of respondents claimed to be well- or fully aware of current regulations. Some of the topics that consistently emerged from respondents were a desire for global collaboration to create a consistent and standardized regulatory framework, avoiding country or state idiosyncrasies; transparency, accountability and human oversight to ensure decision-making is clear; ethical deployment and data privacy; and flexibility and adaptability in any legislation to mirror the rapid advancement of AI. All conversations point to the need for ongoing dialogue and collaboration between regulators and the industry to allay concerns.
Sitting on the bench of the AI race is risky, allowing competitors to steal a march in cost savings, efficiency and overall performance. AI could open competitive threats to incumbent players, as tech-enabled disruptors enter the market, working in faster, smarter and more engaging ways. On the positive side, those who adopt the right technologies first can power ahead toward the finish line. Early adopters in the industry are already realizing the benefits of AI. Nine out of 10 early AI adopters report it is having a positive impact on risk and compliance.
In an increasingly fast-paced, complex and data-driven world, AI allows businesses to do more with less, adapt efficiently to change and deliver the next generation of services, detection and protection. These paradigm-shifting benefits enhance the effectiveness of risk management while ensuring compliance.
Whether you are in the vanguard of change or reluctant to adopt AI, it pays to understand what is happening in the field. It will undoubtedly be a key driver of progress and could influence competitive advantage. It does create entirely new opportunities and challenges for risk and compliance professionals — whether leading change or resisting it — for the foreseeable future, so developing understanding, continuing to participate in the conversation, and beginning to navigate the AI landscape are essential.
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