Artificial Intelligence and Compliance
Artificial Intelligence (“AI”) is transforming many industries, including compliance. Large companies face significant costs and risks in complying with regulations and seek ways to do so efficiently without overspending.
Cost of Regulatory Compliance
In 2023, global financial crime compliance costs reached $206 billion (around R3 trillion ZAR). These high costs highlight the need for efficient compliance solutions.
Understanding AI in Compliance
AI helps businesses comply with regulations by processing large amounts of data quickly and efficiently.
How AI Enhances Compliance
- Data Handling: AI quickly processes large volumes of data, enabling fast review of documents and records to identify relevant regulatory requirements.
- Pattern Recognition: AI identifies patterns and trends, spotting suspicious activities like fraud or non-compliance. It tracks regulatory changes, automates monitoring and reporting, and helps businesses stay compliant.
- Risk Detection: AI analyses data in real-time, detecting anomalies and predicting future risks, helping businesses prevent potential losses and regulatory issues.
- Compliance Program Oversight: AI monitors compliance policies and activities, flagging non-compliance issues like missed training sessions, and adapts to changing regulations to reduce human error.
- Drawing Compliance Insights: AI’s deep learning capabilities extract valuable insights from vast data sources, identifying patterns that predict market behaviours and guide strategies.
- Streamlining Routine Compliance: AI automates tasks like document verification, speeding up processes and reducing errors, allowing employees to focus on strategic tasks.
- Limiting Mistakes and Raising Productivity: AI eliminates human vulnerabilities like fatigue and bias, ensuring precision in compliance activities, reducing fines, and increasing productivity.
- Keeping on Top of Changing Regulations: AI continuously monitors regulatory updates and integrates changes into compliance systems in real-time, keeping businesses ahead of new rules and reducing non-compliance risks.
By efficiently managing and analysing data, AI helps organisations follow necessary rules and standards, reducing errors and improving overall compliance.
Machine Learning for Compliance
Machine learning, a type of AI, excels at recognising patterns and detecting anomalies. It can analyse past data to predict compliance risks, enabling proactive risk management. It continuously improves by learning from new regulatory data.
Impact of AI on Compliance Programs
AI enhances compliance programs by automating processes and providing valuable insights, supporting precise decision-making and maintaining regulatory adherence.
Benefits and Challenges of AI in Compliance
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- AI enhances efficiency and accuracy by speeding up data processing and reducing errors.
- AI enables proactive risk management by predicting potential risks and allowing preventive measures.
- AI reduces operational costs by automating tasks.
- AI quickly adapts to regulatory changes.
- AI improves decision-making by providing deep insights for better strategies.
- Complex implementation requires technical expertise and investment.
- Ensuring compliance with data protection laws is crucial for data privacy and security.
- Balancing AI and human decision-making are necessary to avoid dependency.
- AI in compliance faces regulatory uncertainty due to its newness and evolving regulations.
- AI must adhere to ethical considerations by being fair, transparent, and non-discriminatory.
The Future of AI in Compliance
AI's role in compliance will grow, becoming more integrated and proactive. AI will predict future risks, shifting from reactive to proactive management. AI will continuously monitor activities to ensure adherence to regulations.
AI will provide customized recommendations based on an organisation’s risk profile and gather regulatory information to prepare organisations for changes. Combining AI with blockchain and the Internet of Things (“IoT”) will further improve compliance processes.
AI will enhance the role of compliance professionals, focusing them on strategy and decision-making. Keeping AI updated and free from biases will be essential for its success in compliance.
What’s Happening in the World?
The European Parliament approved the Artificial Intelligence Act (“the Act”) to ensure safety, protect fundamental rights, and promote innovation.
- Banned AI Applications: Certain AI systems, like biometric categorization, untargeted facial recognition, emotion recognition in schools/workplaces, social scoring, and AI that manipulates behaviour, are banned.
- Law Enforcement Exemptions: Biometric identification by law enforcement is generally prohibited, with exceptions for specific situations like searching for missing persons or preventing terrorist attacks, subject to strict safeguards and judicial authorization.
- High-Risk AI Systems: AI systems with significant potential harm (e.g., in critical infrastructure, education, healthcare, law enforcement) must assess and reduce risks, maintain logs, be transparent, and ensure human oversight. Citizens can submit complaints and receive explanations for AI decisions affecting their rights.
- Transparency Requirements: General-purpose AI (“GPAI”) must comply with transparency rules, including copyright law and clear labelling of deepfakes. Powerful GPAI models face additional requirements, such as risk assessments and incident reporting.
- Innovation and Small and Medium-sized Enterprises (“SME’s”): Regulatory sandboxes and real-world testing will support AI development, particularly for SME’s and startups.
To manage AI’s benefits and risks, we need standards that improve transparency, data quality, and system reliability. These standards, based on stakeholder feedback, can help fill gaps in current regulations. The International Organisation for Standardization (“ISO”) has created standards for AI:
- ISO/IEC 42001:2023 - AI Management System
- ISO/IEC 23894:2023 - AI Guidance on Risk Management
- ISO/IEC 23053:2022 - Framework for AI Systems Using Machine Learning
If you want to go far, go with many.
9moGreat post! AI compliance is definitely something to stay on top of.