Investment compliance automation – the art of doing more with less

Published on January 19, 2024 by Anand Kumar

Rise of the machine: It is rightly said that, “If a service is free, then YOU are the product.” This could not be more relevant in the context of automation tools such as ChatGPT and NLP. Most of these tools deploy deep-learning techniques from a variety of sources, including information entered by users. It would, therefore, not be wrong to say that machines are behaving, learning, evolving and flourishing just as human beings master a craft through practice and experience.

Be the pioneer: Automation is becoming an integral part of business processes, and the sooner we embrace it, the better the chances are of benefiting from the first-mover advantage. The following numbers are a testament to the fact that automation of investment compliance is inevitable and futuristic. We are already witnessing leading service providers introducing novel products in the compliance domain, e.g., those able to execute highly complex and manually-intensive tasks such as guidelines drafting and coding, post-trade monitoring and regulatory reporting with a click of a button.

• Only one in five firms has a comprehensive strategy in place to automate compliance activities

• 90% of the firms plan to increase funding to achieve automation goals

• More than 1,000 new AI-based tools are released weekly

• AI is expected to contribute USD15.7tn to the global economy by 2030

Areas of opportunity

• Guidelines coding: This is an area of investment compliance that presents a large opportunity for automation. With complex investment instruments and strategies being used aggressively, it is becoming increasingly critical to automate this space, not just to save time and costs, but also to ensure top-notch guidelines extraction, annotation and coding.

• Monitoring: Investment compliance monitoring is a critical line of defence to ensure adherence to rules and regulations. It is necessary, therefore, to establish and execute rule-based tools that are flawlessly aligned with regulatory and contractual investment restrictions. These tools would not only instantly and correctly monitor breaches/violations, but would also act as a whistle-blower, identifying and resolving potential breaches. Future tools would be able to interpret crucial information from holding reports and perform post-trade monitoring at the click of a button.

• Reporting: Correct analysis and conclusions are of no use unless they can be communicated seamlessly to the target audience. It is all the more important to automate compliance reporting, as these summaries are often required to be submitted and explained at the highest level of an organisation. Automating reports could significantly reduce data inconsistency and errors by ensuring pre-defined workflow, data integration and a central data source.

The need for automation

• Increased government oversight: In the past, governments required very little transparent reporting of investments, and government oversight was quite limited. Now, there is increasing emphasis on adopting stringent parameters, requiring transparent and consistent reporting.

• Market competition: With the need for automating the investment compliance function accepted, it is now a question of gaining first-mover advantage.

• Complex and customised product categories: With the advent of customised IMAs, multiplex account types, diverse investment strategies and investment in complex, calculation-heavy derivatives, it is becoming all the more important to have tools that can monitor and report them easily and accurately.

• Reduced loss (financial or reputational): Automation is not only about reducing cost, but also about increased accuracy, protecting an organisation from financial loss or reputational damage.

• Increased efficiency: With new regulations being introduced frequently, it is critical to maintain compliance while keeping costs in check by reducing the time and effort required to do so.

Challenges in automation

• Lack of vision: To tap the full potential of automation in the field of investment compliance, it is necessary to establish a clear strategy and roadmap to achieve it. The biggest roadblock is identifying the right problem areas that are automation-worthy.

• Fragmented processes: If workflow is not unified, it would be difficult to synchronise with other business-critical process, resulting in the failure of automation initiatives.

• Lack of IT readiness: Organisations often need to find the right balance of infrastructure, technology and cybersecurity that can support and sustain the novel technologies being introduced in the field of investment compliance automation.

• No change-management plan: A robust change-management plan is needed for any investment compliance automation project to succeed. This includes training and reskilling and ensuring proper communication about the benefits of new technologies.

Benefits of automation

• Reduced cost: The latest automation tools introduced in the field of investment compliance can perform complex tasks such as guidelines extraction and monitoring in a fraction of a moment, reducing manual intervention and cost to a bare minimum.

• Increased accuracy: These tools are constantly evolving and, therefore, less prone to error.

• Capacity augmentation: Investment compliance automation technologies free up fund managers’ time to strategise new product offerings and enter new markets, increasing profits.

• Compliance and being audit-ready at short notice: These tools maintain activity logs so the data can be extracted easily for auditing purposes.

How Acuity Knowledge Partners can help

We help balance your compliance workload and manage staff retention while adhering to best practices. Our dedicated team of 150+ compliance experts support global compliance teams, helping to address challenges in increasing the effectiveness of their compliance programmes and managing with fewer internal resources, ensuring high-quality results and reducing turnaround time and costs.

A good example of our futuristic approach to compliance is our newly launched application, Guidelines Compliance Manager (GCM). Our experience has proved that it reduces the number of manual touch points and automates the coding process significantly. GCM not only reduces the time taken for coding by more than 40%, but also greatly improves the accuracy of the coded guidelines.

GCM automates the coding process by extracting and mapping rules to a detailed annotation grid. It conducts a gap analysis, identifies uncaptured language with potential liability exposures, conducts rule rationalisation and provides customised MIS reports. It is also compatible with all third-party and in-house compliance engines.

Sources:

• chatgptwebinarfinalpdf1684855009273.pdf

• Case Study: Adding Financial Services Compliance Automation (auxis.com)

• Robotic process automation (RPA) | Deloitte Insights

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