Does the phrase “AI in risk and compliance management" conjure up images of robots taking over the world—or worse yet, replacing you at work?
From the Terminator to Hal in 2001: A Space Odyssey (and a spate of other films like Blade Runner and The Matrix), countless films have imagined a world where artificial intelligence has become so advanced that it becomes a threat to mankind’s very existence.
The good news is that the AI that Hollywood has imagined up is just that—imaginary. Comparing the AI capabilities of The Terminator to what AI can do today is like comparing the work of Indiana Jones with real-life archeologists. It’s all fantasy.
The reality is that AI isn’t going to replace you, but it will make you smarter.
AI & Risk Management
There are things that humans are really good at. There are things that artificial intelligence is really good at. These are not necessarily the same things.
Computers are amazing when it comes to crunching massive amounts of data. They are able to find patterns and trends that a human with finite time is unlikely to find. For example, NASA used a network of 80 personal computers equipped with AI to develop a super powerful and small antenna for space satellites. They fed it a few basic antenna designs and gave it performance parameters for the antenna. In just 10 hours the computers were able to assess and adapt millions of iterations to find a design with peak performance. The design it settled on wasn’t sleek and streamlined. It looked like a couple untwisted paper clips. It’s a very random-looking yet specific design a human would have taken much longer to develop—if we even thought of it at all.
But computers don’t win at everything.
Humans are superior when it comes to interpreting data to understand the why behind the trends. Even a 5-year-old can make connections that a machine can’t. Consider this passage:
Sally got a new cat. The cat was outside. Sally put on her shoes.
Why did Sally put on her shoes? You probably inferred that Sally wanted to go outside to be with her cat. That’s a basic assumption, yet one that a machine can’t easily make. It’s a job for humans.
The future of banking will require some combination of humans and machines working together. A smart machine can only get you so far, but a smart machine working in tandem with a smart human becomes smarter than either of them working alone.
Consider AI in risk management. A machine might be able to tell you that it is 80 percent confident in a credit score. A human risk manager may decide it’s only comfortable using the AI assessment when the confidence score is 92 percent or more. If the score is between 50 percent and 92 percent it will go to a human for review. Scores below 50 percent will be denied.
In this scenario, the slam dunk decisions will be made by a machine, freeing up employees to focus on decisions that require greater analysis and understanding. Both the machine and the human are deployed in a way that makes the most of their innate talents.
The Future of AI in Risk Management
AI is poised to play a greater role in banking in the future. Here are just a few examples of where AI could have a measurable impact on FIs, getting work done faster and more efficiently than ever before.
Complaint management involves a lot of legwork for staff. Complaints come in across a variety of channels, including calls, emails, tweets and Yelp reviews. Each of these complaints needs to be reviewed and the FI must determine what regulations, rules, or laws apply to each complaint. An FI is then required to respond to the complaint. This is especially true when it comes to consumer complaints, where depending on the type of product, complaint, and channel used to report it can create a specific timeline for a response.
AI should make quick work of complaint management in the future. AI will be able to use the rules your FI provides to identify and assess complaints and grow more sophisticated as it gets more data. It will be able to cross reference policies and procedures in milliseconds, letting humans know what complaints require what types of action.
It might even be able to respond to complaints, using natural language processing (NLP), an area of machine learning that deals with speech, text, translation, understanding its context, and responding. Analyzing the content and past experience, it could determine which templated response would be most appropriate. Even if it can’t answer the complaint, it would be able to rout it intelligently to the right staff member.
Understanding if policies and procedures comply with regulation.
AI is already used in call centers to answer basic questions. As AI becomes increasingly adept at understanding questions, it could help us understand if a policy meets both the spirit and letter of a regulation.
Better risk and credit decisions.
Alternative data, including information gleaned from social networking and comparing peer behavior, is already in use today. These are only going to grow more sophisticated as different troves of data are connected. This newly combined data can be used to train AIs and improve their algorithms. Machines will be able to uncover some really interesting relationships. Maybe we’ll find out that people who wake up 6:30 a.m. in the morning are more likely to pay their bills on time.
Preparing for the AI of the Future
As AI becomes more advanced and offers more opportunities, financial institutions should be thinking about how AI can help their operations and what they should be doing be prepare. That includes:
Assessing the risks and benefits of AI.
FIs can choose not to embrace AI and keep doing things the way they are. Avoiding AI removes the risk of new and evolving technologies. Keeping the status quo may end up putting your FI at a competitive disadvantage if it allows other providers to offer products and services cheaper and quicker. Being an early adopter may be a market differentiator. The only way to understand the risk and opportunities of AI is with a careful risk assessment.
Finding partners and vendors able to provide these services.
Most financial institutions don’t have the resources to build their own AI. They are going to want to find companies capable of doing these things for them. Vendor due diligence and vendor management rules will apply.
Find new ways to connect data.
Google makes its AI technologies freely available, but there’s one thing it jealously guards and won’t share: its data. Data is the fuel that makes AI learn and evolve. Your FI could purchase the most expensive, sophisticated AI available, but if you don’t have relevant data it will provide a very limited value.
Much of the data at today’s FIs are siloed and segregated. Now is the time to start thinking about how your FI could centrally store and connect data from disparate departments for future AIs to analyze. There are insights to be gleaned if data can be connected.
Don’t write off artificial intelligence as a sci-fi movie plot point. AI is real and an increasingly valuable business tool, especially when it comes to risk and compliance management.
Michael Berman is the founder and CEO of Ncontracts, a leading provider of risk and compliance management solutions, and the author of The Upside of Risk: Turning Complex Burdens into Strategic Advantages at Financial Institutions. His extensive background in legal and regulatory matters has afforded him unique insights into solving operational risk management challenges and drives Ncontracts’ mission to efficiently and effectively manage operational risk.
Interested in learning more from our partner, Ncontracts? Register for their upcoming webinar:
The Upside of Risk: Unlocking Strategic Success for Financial Institutions – Friday, August 27, 2021 @ 12:00 PM CT