AI in RegTech can now be used to analyze large volumes of data, identify the impacts of regulations on business and corporate processes, and support those who perform this activity manually, improving various aspects and reducing operational costs. Thus, many benefits can be obtained overall.
Specifically, with Machine Learning solutions, it is possible to continuously improve these processes by learning from historical data to adapt to new threats and regulatory changes.
We can generally say that RegTech is useful for financial institutions, not only for the individual aspects and benefits we will see in the course of this article, but particularly for two reasons:
- to always comply with regulations;
- to understand how to use regulations to improve the performance of the organization itself.
RegTech: what is it?
So far, we have seen the benefits of AI solutions in RegTech, but what exactly do we mean by RegTech? Let’s explore it in detail.
RegTech is short for “regulatory technology,” a term coined in 2015 from the combination of the English words “regulation” and “technology.” It was first used by the Financial Conduct Authority and can be seen as a subset of what is generally known as Fintech, referring to the intersection between technology and regulation.
Key characteristics of RegTech include:
- agility;
- speed, with reports generated very quickly;
- analytical capabilities, organizing data for easy understanding and to support informed decision-making;
- remote management.
Understanding what RegTech is, it is clear that when we talk about AI in RegTech, we specifically refer to the application of Artificial Intelligence techniques for compliance analysis, useful in particular for:
- identifying money laundering scenarios or fraudulent situations using Machine Learning;
- monitoring risk through multidimensional analysis;
- quickly analyzing large amounts of regulations to verify that current controls are adequate.
For these reasons, we can say that these AI in RegTech are particularly oriented toward financial institutions, and using such solutions can solve various problems as well as provide significant competitive advantages.
Who is Regtech targeted at, and what is its main purpose?
RegTech, which is part of a global market worth $12.82 billion (2023 data) and is projected to grow to $15.80 billion in 2024, is primarily aimed at companies operating in highly regulated sectors that need solutions to facilitate regulatory compliance and risk management, such as financial institutions and banks. For these organizations, RegTech represents a competitive advantage, given that they face an increasingly complex operational and regulatory environment.
RegTech offers an excellent solution, allowing them to:
- monitor risks;
- detect financial crimes;
- manage compliance;
- reduce management costs.
Among the main technologies used in RegTech, as detailed in the graph below, we can find:
- Cloud Computing;
- Machine Learning;
- Predictive data analysis;
- Data transfer protocols;
- Natural language processing.
RegTech represents an important step toward the digitalization process, as well as the latest step in the evolutionary journey of the compliance function. Therefore, the purpose of applying AI solutions in RegTech is straightforward: to simplify compliance with regulations for companies operating in regulated sectors, such as banks and financial institutions, by using specific technologies—innovative Artificial Intelligence solutions capable of streamlining every process.
To pursue the primary goal of increasing process automation, RegTech solutions typically stand out for their ability to:
- dynamically and quickly adapt;
- enable real-time operations and evaluations;
- remain easily scalable.
Compliance Regtech: the advantages of AI solutions in Regtech
The main advantages that AI in RegTech bring to financial institutions can be summarized as:
- uncovering financial crimes through data correlations;
- preventing fraudulent activities by enabling real-time monitoring and multidimensional transaction analysis;
- increasing customer satisfaction through efficient operational actions;
- minimizing risks;
- reducing operational costs.
But how can these advantages be achieved? The solution may lie in Moneying, an application suite based on the Rialto™ platform developed by the Revelis team, which allows for advanced analytics to identify potential financial crimes or risky behaviors. Thanks to this, our clients have obtained all the advantages mentioned above.
Moneying offers banks and financial institutions the ability to:
- conduct constant anti-money laundering monitoring;
- perform predictive analysis;
- receive suspicious transaction reports;
- improve risk management.
Conclusion
The number of regulations to comply with is not expected to decrease in the near future; in fact, we can say that the opposite is likely to happen, given the current technological and social innovations. For this reason, adopting AI solutions in RegTech to monitor risks, detect financial crimes, improve compliance, and consequently reduce management costs is now an essential move for financial institutions to always remain compliant in an efficient way.
The adoption of Artificial Intelligence is now not only essential but also represents a turning point in how financial institutions address compliance and improve its management. Relying on reliable partners like Revelis, specializing in AI solutions in RegTech, is a winning move capable of bringing immediate and measurable competitive advantages.
