Artificial intelligence (AI) and machine learning (ML) are transforming the way that financial risk, financial crime risk, and governance, risk, and compliance (GRC) are managed. RegTech solutions driven by AI automate and expedite compliance operations, lowering the strain of manual activities and increasing productivity. These technologies can evaluate massive amounts of data in real time, such as regulatory requirements, legal documents, and transactional data.
However, the adoption of AI in RegTech also raises new challenges and concerns, such as the potential for algorithmic bias, the opaqueness of decision-making processes, and the robustness of AI systems against cyber threats and privacy breaches. Furthermore, the use of AI in RegTech may create new sources and transmission channels of systemic risk, such as greater homogeneity in risk assessments and rising interconnectedness that could quickly amplify shocks.
Therefore, regulators and supervisors need to balance the benefits and risks of AI in RegTech, and ensure that human oversight and accountability are not compromised by the increasing reliance on machines. This requires a coordinated approach at the national, regional, and international levels, as well as a clear understanding of the ethical and legal implications of AI in RegTech.
Some of the key questions that regulators and supervisors need to address are:
• How to ensure that AI systems in RegTech are fair, transparent, explainable, and auditable?
• How to monitor and mitigate the potential systemic risks arising from AI in RegTech?
• How to foster innovation and competition in the RegTech market while maintaining a level playing field?
• How to update and harmonize the regulatory frameworks and standards for AI in RegTech across jurisdictions?
• How to leverage AI in supervisory technology (SupTech) to enhance prudential oversight and market surveillance?
According to a recent report by Mordor Intelligence, the global RegTech market size was USD 5.32 billion in 2019 and is expected to reach USD 21.73 billion by 2027, growing at a compound annual growth rate (CAGR) of 19.5%.
AI in RegTech is a rapidly evolving field that offers significant opportunities and benefits for the financial sector, but also poses new challenges and risks that need to be carefully managed. As AI becomes more pervasive and powerful in RegTech, human oversight and governance remain essential to ensure that machines serve the public interest and do not overrule human values.
