Every year, companies deploy a battery of compliance and risk specialists, resulting in significant costs incurred on ensuring compliance with complex regulations. These specialists face several challenges in determining risk, identifying compliance gaps and initiating best-fit compliance actions. For example, access to the latest changes in regulations and judicial interpretations of regulations is a key challenge. Another challenge emerges from the data silos and the disparate processes within organizations and across the regulatory ecosystem. This data fragmentation prevents compliance and risk specialists from understanding the complete context of an anomalous regulatory event that requires attention and swift compliance action. This challenge is complicated by the sheer scale of data and infusion of unstructured data such as news feeds and social media feeds to the data mix. And, not just compliance and risk specialists, even last-mile customer interaction points such as service agents are also affected by lack of access to regulations, contextual data and related actions.
The new-age digital co-worker
Imagine a virtual co-worker who intelligently analyzes disparate data sources and events to identify insights and patterns relevant to the regulations in play and generates an alert about potential risks. This “Smart Regulatory Advisor” not only identifies hotspots that need attention, but also provides actionable insights. These include additional context, prescribed regulatory reporting actions and risk management actions for all stakeholders in the regulatory environment.
Regulatory technology, or “RegTech,” is adding a “smart” edge to regulatory compliance. The smart use of technology is helping organizations bridge the gap between regulatory intent and interpretation, helping organizations bring down the cost and the complexity involved in compliance operations. The next big leap in RegTech is intelligence augmentation through smart regulatory advisors built on technologies such as machine-readable regulations, conversational agents, knowledge modeling, machine learning, sentiment analysis and social data mining. These AI-powered Smart Regulatory Advisors can significantly enhance the functioning and efficiency of compliance, risk and regulatory-related functions.
Smart Regulatory Advisors can help achieve compliance by:
Creating awareness of significant events based on business and market data that may potentially impact an organization’s functioning.
Triggering an alert for relevant stakeholders.
Providing actionable and contextualized insights to make quick, informed decisions.
Getting regulatory compliance right, the first time!
Let’s take new regulations such as the General Data Protection Regulation (GDPR) and the evolving regulations on Anti-Money Laundering (AML) and Know Your Customer (KYC) as use cases to see how these Smart Regulatory Advisors work:
General Data Privacy Regulation (GDPR)
GDPR is Europe's new framework for data protection and aims to strengthen data privacy laws and offer greater protection and rights to individuals. In the context of GDPR, Smart Regulatory Advisors can help accurately interpret its intent to the last mile. For example, during the customer onboarding process, it is essential to obtain customer consent for use of personal data for specific business activities. Therefore, customer consent needs to be integrated into the related business process to ensure compliance. If a customer service agent (CSA) does not adhere to such a process or violates the regulatory clause, heavy regulatory fines might be imposed on the company. Here’s how a Smart Regulatory Advisor can enable a GDPR-compliant interaction between a CSA and a customer:
Awareness: The advisor understands the activity a CSA is performing and enables the CSA to interact with a company’s knowledge base and IT systems through an intuitive interface. For example, during customer onboarding, if a customer asks, “Why do you need to know what my annual salary is when I want a new mobile connection?”, the CSA can seek the advisor’s help. The advisor’s intelligence engine accesses the companies process knowledge models to prepare a response for the CSA: “Annual salary is required to determine the credit limit for a new mobile connection.”
Alert: The Smart Regulatory Advisor alerts the CSA to take explicit consent from the customer to allow the company to use annual salary for credit limit calculation.
Act: It recommends the consent statement that the CSA needs to communicate to the customer. Using this, the CSA obtains customer consent and completes the onboarding process. This also helps the CSA comply with regulations in real time and enhance trust and customer engagement by demonstrating the company’s regulatory compliance intent.
Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations
AML and KYC are ongoing processes. Financial institutions need to continuously refine customer profiles based on multi-faceted data—financial transaction data, evolving customer profiles and social data. Sentiment analysis on social data helps identify emergent risks that provide a basis for continuous refinement of customers’ risk profiles. In such cases, here’s how the advisor can help:
Awareness: Analyzing streams of market data from multiple sources, the advisor alerts the risk officer about any negative sentiment trends associated with a company or stock that the company has exposure to. It uses the company’s risk models to associate a severity with this alert.
Alert: Subsequently, the risk officer can use conversational interface to intuitively probe further and gather contextual data around the alert. For example, the risk officer can ask the advisor to show the geographic spread of the negative sentiments by visualizing the hotspots on a geographical map. This helps the officer assess risks and course of action for specific geographies.
Act: The Smart Regulatory Advisor prepares a regulatory submission using regulatory reporting templates. It even triggers a due diligence workflow for relevant people to communicate and collaborate for managing the potential risk. The advisor provides actionable insights and helps save time and effort typically spent on manual coordination between various stakeholders within the organization.
Smart Regulatory Advisors provide a robust technology platform that offers the intelligence augmentation—awareness, alert and act—necessary to support regulatory stakeholders in taking timely and accurate compliance actions in a data intensive and complex regulatory environment. In our next blog post, we will discuss our experience in designing and developing applications with compliance as a priority rather than an afterthought.