Rethinking Risk & Compliance for the Age of AI

In the fintech world especially, AI has been in increasing demand amongst businesses looking for ways to better service their clients and provide tools and services that were previously out of reach.

With the global AI in the fintech market expected to reach $22.6bn by 2025, it’s clear this is not a trend that is on its way out any time soon. But what new challenges does it bring with it when it comes to risk and compliance?

What is AI and why is it so important?

Artificial intelligence, or AI, is intelligence demonstrated by machines, mimicking human behaviours such as planning, learning, analysing and reasoning.

In real terms, the introduction of AI capabilities in the business world has allowed companies to progress exponentially, improving customer experiences, speeding up internal processes and providing the tools necessary to introduce new and exciting products. Within the finance and fintech industries especially, AI has allowed businesses to grow in line with the expectations of an increasingly tech-savvy audience.

The role of risk & compliance in finance

Risk and compliance are a huge part of the finance world, forming a key role in the governance of products and services that are used and sold within a heavily regulated sector. The aim of these functions is to ensure the security and integrity of the business internally, as well as for their client base.

Data security has never been more important than it is now, with the spotlight firmly on businesses to ensure adherence to regulations remains a top priority. Alongside the obvious financial and legal implications for not keeping data safe, there is also a massive risk to a company’s reputation, and security breaches can be absolutely devastating for any business. Worst case, it can result in regulators inflicting large fines, or even withdrawing operating licences.

The Benefits of AI in fintech

Fintech is one of the fastest growing industries in the UK and there is a huge amount of competition in the market.

With many consumers looking for a fully remote or digital banking and payment experience, businesses are looking for ways to set themselves apart, by increasingly turning to state-of-the-art technology.

Within the financial world especially, there has been an increased focus on ‘Big Data’ to analyse trends in a more streamlined and effective way. The ability to automate certain aspects of this analysis means that companies can process a much larger number of clients, increase the amount of data they collect and the learnings they take from this.

This increase of data and automated analysis has meant that financial risk managers are able to assess information and make decisions quickly and more efficiently, which can result in lower operational, regulatory and compliance costs for the business, whilst also providing more reliable data for making credit related decisions.

As technology advances, so does the risk of fraud. AI is increasingly being looked upon by Compliance and Risk Teams to tackle these risks, using machine learning to recognise and flag fraudulent activities before they become a bigger issue.

Potential issues that AI can introduce for businesses

Of course, alongside all the benefits of AI, it has also brought new challenges with it – especially when it comes to risk and compliance. The fintech sector is one that is highly regulated, and dealing with increased amounts of data means bringing in new identification and authentication procedures with it. Holding such huge amounts of sensitive data also leaves businesses more open to cyber-attacks, meaning businesses have to invest in and manage much stronger security capabilities than in other sectors.

With such a huge risk to reputation for any security breaches, there is an enormous amount of pressure on the risk & compliance managers to stay on top of the data that is held within a business, and this requires additional investment in internal software and training to ensure teams are equipped to analyse and understand the data effectively.

How fintech businesses can manage AI in the world of risk & compliance

One of the most important things to remember when it comes to using AI in finance is the importance of conducting thorough risk assessments before making any decisions, or introducing any new technology. Being able to foresee and mitigate any potential risks will allow the business to quantify and prepare for them and result in minimal disruption.

In addition to this, it’s vital to think about the people within the organisation who will be managing these risks and systems on a day-to-day basis. Do they have the relevant training? Is there a need to hire more experts into your risk and compliance teams? Does anything need to be outsourced? These are just a few of the questions you should be asking as the best time to control a risk is before it’s happened. You should also ensure the people in your business are properly equipped so you to feel more confident in your AI capabilities.

Datam’s approach to AI risk assessment

At Datam, we position ourselves very much at the forefront of the innovative payments world, and AI forms a vital part of our business strategy. With customer experience very much our focus, it’s important that we can provide the background technology to ensure a smooth and secure merchant journey from initial contact to live customer.

Our extensive data harvesting and validation techniques mean that we can maximise the accuracy of data we provide to our clients, minimising the risk of working with incorrect data. We also put a heavy focus on fraud, using specialist tagging techniques to allow industry standard fraud checks to be applied quickly and seamlessly.

Our business was founded on the determination to remove the complexity of onboarding new customers for our clients, and data security and compliance are at the heart of all our services. If you’d like to find out more about what we offer at Datam, please get in touch with us today.