Much has been made of the potential of new technologies to streamline highly manual processes or those involving large amounts of data. Regulatory reporting, with its reliance on vast quantities of often-complex and highly granular data, has been a prime candidate for emerging technologies such as artificial intelligence (AI).
A recent report from Wolters Kluwer and PwC outlined how:
- In a Proof of Concept (PoC), Wolters Kluwer and PwC applied AI and ML techniques to regulatory reporting, with promising results.
- The PoC showed that AI can be used to automate large parts of regulatory reporting and serve as an independent validation mechanism of the end-to-end process for financial institutions across all jurisdictions.
- Obstacles to adoption in this space remain, especially with respect to the ability of computers and models to interpret outputs and to decide on what information to include in regulatory reports.
- The PoC found that it is possible to build predictive models with high accuracy and flexibility that complement human judgment and oversight, making it likely that production reporting mechanisms will incorporate AI and ML in the near future.
- Regulators globally are imposing more rigorous reporting obligations on financial institutions in a bid to increase transparency and strengthen investor protection.
- Emerging regulations require more prescriptive and highly granular data sets, reported in increasing frequencies.
- Regulatory reporting for financial institutions has become more difficult, with increased risk of potential error.
- Financial institutions are looking to new technologies to relieve regulatory reporting burdens.
- Artificial Intelligence (AI) and Machine Learning (ML) can find patterns in large data sets, learning and adapting to improve performance over time.
- While AI appears well suited to deal with the onerous requirements of regulatory reporting, financial institutions have yet to adopt it as a solution for this specific function, despite some successes in KYC automation, reconciliations and a number of front-office activities.