A-Team Insight Blogs

The Potential and Promise of AI and Machine Learning in Regtech

After engaging in Peter Moss’s exciting keynote speech, “Garbage in, Garbage Out—Why Regtech is Only Half the Answer” (listen to the Podcast here), discussing the crucial importance of data as a foundation for regulatory compliance, the audience at the recent RegTech Summit New York on November 15, 2018 prepared themselves for a leap into an altogether different discipline: with a panel discussing the potential and promise of AI and machine learning within the regtech industry.

Moderated by Dale Richards, President of Island 20 Ventures, panelists discussed business use cases, how AI and machine learning could be used to augment systems, and barriers to the widespread use of AI and machine learning.

The panel agreed upon working definitions for machine learning and AI when Mary Jane Ajodah, Vice President of FinTech Strategy & Partnerships and Chief Digital Officer at BNY Mellon, distinguished the terms. Ajodah explained to the audience that most machine learning techniques, or training a machine to learn through inference, could generally be taken on by a data science team; while in AI, the machine can learn independently.

The concepts behind the “Garbage in, Garbage Out” address drove some of the discussion, as panelist Ali van Nes, SVP and Senior Director of Regulatory Solutions at Factset, emphasized the point that without organized data underlying AI, it becomes difficult to implement AI. Viktoriia Samatova, Vice President and Head of Research and Product Development at Quantextual Research at State Street, commented that data can be both unstructured and biased, which can impact the quality of the model. Nes identified the weak links for firms as data management and plugging into existing systems.

“If you can’t solve those problems, the best regtech in the world is not going to deliver what you’re looking for,” noted van Nes.

Overbond CEO Vuk Magdelinic proposed that AI could be applied not simply as a trading vehicle, but to fill gaps in datasets.

“There are a lot of problems, especially in very gappy data sets, [such as] unknown correlation sets, so just coming in with a quant model with statistical assumptions and coming in trying to validate all your hypotheses is limited,” explained Magdelinic. “The AI application does give you a pickup in precision and that’s the primary motivation to go through some difficulties now with big data and modeling and the iterative approach that AI requires.”

Currently, van Nes foresees an issue due to a lack of common standards and interpretations across the enforcement of regulations. Due to the lack of standard definitions amongst regulators, it is difficult for AI to solve for the problem.

“If standards do start to bubble up, we’ll have an ecosystem that’s more ripe for AI,” she predicted.

Leave a comment

Your email address will not be published. Required fields are marked *

*

Share article

Related content

WEBINAR

Recorded Webinar: The Data Management Implications of Solvency II

A-Team Group recently held a webinar on the popular topic of The Data Management Implications of Solvency II, discussing the data implications for asset managers and their custodians and asset servicers. You can register here to get immediate access to the webinar recording Download the accompanying Special Report here.

BLOG

France to Create Own CDS CCP, Says Banque de France Report

According to a recently leaked Banque de France report, the French central bank is attempting to unite the countries in the EU to set up their own clearing counterparty (CCP) for the credit default swap (CDS) market. It is thought that the proposals are in reaction to the announcement earlier this week by London-based LCH.Clearnet...

GUIDE

Tackling the Data Management Challenges of FATCA

As the July 1, 2014 deadline for compliance with the Foreign Account Tax Compliance Act – or FATCA – approaches, financial institutions around the world are working to ensure their data management and operational systems will meet the requirements of the US legislation. This report discusses the requirements of FATCA and how the legislation is...