About a-team Marketing Services
The knowledge platform for the financial technology industry
The knowledge platform for the financial technology industry

A-Team Insight Blogs

Investment Firms Embrace Generative AI: A Boon for Monitoring and Compliance

Subscribe to our newsletter

By Osvaldo Berrios, SME, Compliance, NICE Actimize.

The financial services industry is undergoing a transformative shift, with artificial intelligence (AI) playing a central role. Investment firms are starting to explore the potential of Generative AI (GenAI) to enhance their business dealings, particularly in the areas of monitoring, surveillance and regulatory compliance.

Monitoring and Surveillance

One of the primary areas that GenAI provides value to investment firms is detecting anomalies. GenAI can be trained on historical data to identify patterns of normal advisor activity which can then detect aberrant activity. This allows firms to detect potential red flags, such as unusual trading patterns or suspicious communication with clients, much faster than traditional methods.

By generating realistic hypothetical scenarios, GenAI can help firms test and refine their surveillance processes. This can be particularly valuable in areas like fraud detection and market manipulation. GenAI can automate the creation of reports on advisor activity and potential compliance issues. This frees up human compliance staff to focus on more complex investigations.

The effectiveness of GenAI models is highly dependent on the quality and quantity of data used for training. Biased datasets can lead to biased AI models, potentially amplifying existing inequalities in the financial system

Compliance with Regulations

Regulatory Document Generation is another key role played by GenAI techniques. GenAI can be used to generate regulatory reports and other compliance documents, saving firms significant time and resources. And since regulatory landscapes are constantly evolving GenAI can be trained to stay updated on new regulations and identify potential compliance risks associated with new investment products or strategies.

GenAI can also personalize compliance training for advisors based on their specific risk profiles and areas of expertise.

Challenges and Considerations

While GenAI offers exciting possibilities, implementing it effectively requires addressing some key challenges. The effectiveness of GenAI models is highly dependent on the quality and quantity of data used for training. Biased datasets can lead to biased AI models, potentially amplifying existing inequalities in the financial system. Understanding how GenAI models arrive at their conclusions is crucial. Firms need to ensure these models are transparent and explainable to maintain trust and mitigate potential regulatory concerns.

GenAI is a powerful tool, but it should not replace human expertise. Firms still need experienced compliance professionals to interpret AI outputs and make informed decisions.

Negative Aspects

Is job displacement an issue today? Automation through GenAI may lead to job losses in compliance departments. This necessitates retraining and upskilling existing staff to adapt to new workflows. There may also be a potential for misuse. Like any powerful technology, GenAI could be used for malicious purposes such as generating fraudulent documents or manipulating markets. Robust security measures are crucial to mitigate these risks.

The Road Ahead

GenAI holds immense potential for investment firms to enhance their monitoring, surveillance, and compliance capabilities. However, successful implementation requires careful consideration of data quality, bias, explain ability, and the role of human oversight. As technology matures and regulatory frameworks adapt, GenAI is poised to revolutionize how investment firms manage their business dealings and navigate the ever-changing regulatory landscape.

For more information on NICE Actimize’s applications for capital markets, see: https://www.niceactimize.com/financial-markets-compliance/.

Subscribe to our newsletter

Related content

WEBINAR

Recorded Webinar: Best practice approaches to trade surveillance for market abuse

Breaches of market abuse regulation can lead to reputational damage, eye-watering fines and, ultimately, custodial sentences of up to 10 years. Internally, market abuse triggers scrutiny of traders and trading behaviours; externally it can undermine confidence in markets and cause financial instability. This webinar will discuss market abuse of different types, such as insider trading...

BLOG

FCA Focus on Non-Financial Misconduct Amplifies Case for Comms Surveillance

By Oliver Blower, Chief Executive Officer of VoxSmart. Leading City compliance professionals have been bombarded with reasons to enhance their employee communications surveillance capabilities over recent months, with fresh headlines making the case on an almost daily basis.  Recently, yet another story broke around the threat posed by insider trading, with ex-Goldman Sachs analyst Mohammed...

EVENT

TradingTech Briefing New York

Our TradingTech Briefing in New York is aimed at senior-level decision makers in trading technology, electronic execution, trading architecture and offers a day packed with insight from practitioners and from innovative suppliers happy to share their experiences in dealing with the enterprise challenges facing our marketplace.

GUIDE

Fatca – Getting to Grips with the Challenge Ahead

The industry breathed a sigh of relief when the deadline for reporting under the US Foreign Account Tax Compliance Act (Fatca) was pushed back to July 1, 2014. But what’s starting to look like perhaps the most significant regulation of the next 12 months may start to impact our marketplace sooner than we think, especially...