Practical analysis for investment professionals
12 January 2017

The Regtech Revolution: Compliance and Wealth Management in 2017

What is that black storm cloud looming over the financial services business? Compliance.

As the global markets grow in complexity and the threat of sophisticated cyberattacks escalates, the amount of new financial regulation has skyrocketed. Keeping current with all of these new provisions is a costly and complicated endeavor — one with no end in sight.

According to Martin Arnold of the Financial Times, “Big banks, such as HSBC, Deutsche Bank, and JPMorgan, spend well over $1bn a year each on regulatory compliance and controls. Spanish bank BBVA recently estimated that on average financial institutions have 10 to 15 per cent of their staff dedicated to this area.”

This outlay can limit a firm’s ability to invest in growth. The costs also extend to job satisfaction. According to this 2012 trade group survey, 60% of compliance officers have considered calling it quits because of job stress.

To address the problem, banks and wealth managers have been hiring new compliance officers at a breakneck pace. But that is not enough to cope with the deluge of new rules and data that must be managed.

Ultimately, a 21st century problem requires a 21st century solution. Enter artificial intelligence (AI).

The application of AI and other new technologies to regulatory compliance issues has a name: regtech, or regulatory technology. And it will be a key theme in 2017.

Regtech combines a collection of related technologies, including natural language processing (NLP) and machine learning, that together can be used to analyze unstructured content like laws and regulations. In combination, they can “read” documents and not only extract metadata, but “understand” the intent or purpose of specific parts of these documents. If this sounds magical, that’s because it is. It is so close to what human intelligence does, only it’s automated and fast.

Many financial services and fintech firms are already writing AI into their plans for the next few years. In a recent Baker McKenzie survey of senior executives from financial companies, 49% said they expect their firms to use AI for risk assessment within the next three years. Another 29% anticipate that their firms will apply AI to learn more about their clients and to prevent money laundering. Another 26% expect that AI will be used to help with regulatory as well as risk and compliance issues.

A few emerging regtech applications are worth highlighting:

  • IBM Surveillance Insight for Financial Services helps identify individual employees who may pose compliance risks. IBM Surveillance Insight is a “cognitive reasoning engine” that uses AI to contextualize disparate signals. It can analyze both unstructured data — employee email, chats, and voicemails — and structured data, like trade transactions, to create a 360-degree view of activity at a firm, raising awareness of potential blind spots.
  • Salesforce Shield is a series of compliance features that Salesforce added to its software to help firms adhere to the Department of Labor (DOL)’s new fiduciary rule.
  • OpenFinance examines global industry data about investment portfolios, asset management, and transactions so banks can understand which businesses and customers are most likely to be affected by new regulations — a mammoth task for compliance departments.

The term “machine learning” dates back to 1959, so AI is nothing new. But it has become a much more sophisticated tool over the last half century and especially in the past few years. It’s faster and smarter and can be applied to more types of data than ever before.

Of course, AI works best when it is aligned with human intelligence. Compliance departments need to understand regtech tools and technologies in order to use them well.

As 2017 gets under way, now is the perfect time to begin that project. While evolving will be a challenge, regtech could go a long way in clearing up the perennial regulatory cloud.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/mattjeacock

About the Author(s)
April J. Rudin

Founder and CEO of The Rudin Group, April J. Rudin is widely acknowledged as a top marketing strategist for the U/HNW, wealth-management and wealthtech sectors. Distinguished by her ability to forecast and leverage critical trends and her expertise in brand differentiation, she leads a firm, now in its 15th year, that designs bespoke marketing campaigns for some of the world's leading wealth-management firms, fintechs/wealthtechs, and family offices; campaigns that strengthen brand value and drive client acquisition. Rudin is recognized by IBM as an "Influencer" in wealth management and fintech, and is a regularly featured source of expert commentary to international news and business outlets, trade publications, and broadcast media. She produces the CFA Institute’s Annual Outlook for US Wealth Management; and speaks about wealth, next-gen, and fintech at conferences in the United States, Europe, Asia, and Africa. Rudin has created an extensive repertoire of thought leadership that has appeared in Forbes, Huffington Post, American Banker, Enterprising Investor, Family Wealth Report, Fundfire, and, and heads the editorial board for NexChange, a global fintech start-up based in Hong Kong. A member of Board for First Rate,and WealthBriefing, she also serves as a judge for the FT Wealthtech awards, Family Wealth Report’s Annual Wealth Management Industry Awards, Finovate and others. Rudin is the mother of two sons who are quick to point out that they considered her an influencer well before IBM did.

1 thought on “The Regtech Revolution: Compliance and Wealth Management in 2017”

  1. Clement Gavi says:

    ‘The Regtech Revolution’
    A revolution that is content of another revolution. Regulation or regulative rules refer here to existing activities that have been affected but in this case regulation has constitution dimension that is regulation isn’t simply about how something must be done but more importantly if it hasn’t been done that way the act itself may not have an existence. Therefore regulative rules have become constitutive rules.

    Having said that, regulation like other things have all been affected by a new given in the structure as a whole, people in perceiving and conceiving regulation use concepts of the time, new technologies (AI, etc).
    The rationality that tries to apprehend and apprehend in a structure has itself been affected. For regulation can not be in an environment without being clothed.

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