“Everything Everywhere All at Once.” The title of the Oscar-winning blockbuster is also an apt description for the rising prevalence of artificial intelligence (AI) within the wealth management space. While AI has been leveraged in the industry for decades to varying degrees, advancements in the technology’s capabilities and applications have resulted in AI becoming the differentiator du jour for enterprises looking to deliver personalized service in what is an increasingly commoditized advice industry. The hype is real. Is the impact?
Expectations for AI have been particularly bold in the regtech arena, where firms are looking to meet heightened regulatory scrutiny in a meticulous, agile and cost-effective manner. AI’s predictive and pattern detection capabilities and ability to gather and analyze enormous amounts of data are deemed to be particularly useful in areas including cybersecurity and risk assessment and mitigation.
We spoke with three industry experts to hear their perspectives on AI:
- Sindhu Joseph, CEO and Co-Founder, CogniCor, a provider of AI-enabled digital assistants and business automation platforms for the financial services industry
- Sander Ressler, Co-Owner and Managing Director of Essential Edge Compliance Outsourcing Services, a strategic consultancy specializing in compliance and regulatory affairs for broker-dealers and RIAs
- Michael Zebrowski, Chief Operating Officer of Docupace, a digital back-office workflow and automations provider for the wealth management industry
We asked each of them: Has the enthusiasm for AI in the regtech space come to fruition or has it been overblown?
Their responses follow.
Joseph: While the high expectations are well-founded, the industry hasn’t yet reached the full implementation potential of AI in this space. Frankly, there is much more to do to achieve AI innovators’ lofty yet realistic goals for the regtech space. However, we are seeing meaningful progress. For example, large language models (LLMs) can review stacks of documents in seconds for regulatory compliance and firms can ask AI to quickly and efficiently review giant data sets in response to regulatory requests, among several other key regulatory and compliance applications. (CogniCor’s ClientIQ is one example of this.)
But this is not without risk. While there are incredible opportunities to leverage AI technology to combat fraud and protect data, every advancement the industry makes can also help bad actors enhance their capabilities to achieve their goals. Frankly, bad actors have a slight advantage as they don’t have to follow stringent regulations to implement the latest technology in service of their goals. As AI models become more available, care must be taken to ensure that the data passed to these models and toolset used in the chain are secure and trustworthy.
To attain the goal of these applications deployed and adopted at a large scale, industry leaders must constantly improve their security and address emergent threats to ensure that the tools we use to safeguard our compliance with regulations do not become liabilities. This necessitates the use of AI in a secure, controlled and compliant fashion through platforms that provide the necessary checks and balances in terms of security, traceability and auditing capabilities for AI-powered experiences in the regtech space.
Ressler: AI is in its infancy. The industry has high expectations. However, while current uses are saving some time, chasing accurate data and verifying that AI is producing results from the right data set are causing more time to be spent overall, not less.
The industry needs to reach a point of accepting AI output with 100% accuracy or its practical uses will be curtailed.
AI will never replace human beings. Data will always need to be filtered through human eyes. AI will ultimately be an effective tool for sifting data, but it has yet to be relied on as a replacement for a full time equivalent worker. The fear is that people may treat AI as a replacement for human judgment before the time is here – if it ever will be.
Zebrowski: AI in regtech has shown promising results in data analysis, automation and risk management. We’ve seen improvements in KYC processes, fraud detection and regulatory reporting efficiency. However, expectations should be tempered with realism. The full potential of AI in regtech is yet to be realized due to challenges like data quality issues and the need for explainable AI to meet regulatory requirements.
While not overblown, high expectations for AI require careful navigation. As the technology matures and regulatory frameworks evolve, we anticipate AI will become increasingly vital in ensuring compliance and managing risk effectively in the financial services industry.
Janeesa Hollingshead, Contributing Editor at Wealth Solutions Report, can be reached at editor@wealthsolutionsreport.com.
