In a recent post by RegTech firm Saifr, the company’s regulatory and compliance advisor Mark Roszak detailed how to find balance between AI and compliance.
According to Roszak, the continued rise of large language models (LLMs) and artificial intelligence (AI) has sparked a fervent conversation among market participants and regulatory bodies. As these powerful tools become increasingly integrated into financial and compliance products, finding equilibrium between fostering innovation and protecting consumers has become a pressing priority.
In the opinion of the Saifr advisor, this year has witnessed notable strides in the adoption of AI-powered tools by financial institutions. These innovative applications aid in real-time transaction monitoring, detecting suspicious activities that may signal money laundering, and identifying non-compliant advertisements. Embracing such automation, Roszak explains, allows financial institutions to enhance their risk management and reduce operational costs tied to maintaining robust compliance functions. It could also diminish the frequency of enforcement actions often triggered by under-resourced compliance departments or mere human error.
Yet, alongside these benefits, LLMs and AI pose novel risks and challenges. Biases in compliance tools, for instance, could undermine their effectiveness. Various countries have thus put forth regulations to ensure the responsible use of AI within the financial industry. The European Union, for example, has laid down an AI regulatory framework mandating companies to offer transparency in their AI system decision-making processes, with emphasis on human oversight, data quality, and transparency.
Roszak gave an example of the Monetary Authority of Singapore, which is one regulator striving to comprehend and suitably govern these emerging technologies. MAS has devised a regulatory “sandbox” enabling FinTech companies to trial their new AI-powered services in a risk-free environment. This unique arrangement facilitates feedback from regulators as companies unveil their new offerings, fostering innovation while ensuring compliance with regulatory prerequisites.
Notably, regulatory bodies aren’t the only entities providing guidance for AI and LLMs. Industry stakeholders are also establishing their own ethical frameworks for AI usage. The Institute of Electrical and Electronics Engineers (IEEE), for example, has outlined principles for autonomous and intelligent systems, including transparency, accountability, and fairness.
Roszak concluded that 2023 marks a pivotal year for the intersection of AI, LLMs and financial regulation. As these technologies continue to revolutionise the financial sector, regulators globally are striving to keep pace, balancing innovation and consumer protection. The emergence of AI-powered compliance tools and new AI regulations in 2023 underscore the necessity of calculated regulation in the evolving world of AI, financial products and compliance.
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