As the new year approaches, it is possible to make educated predictions about what the financial landscape will look like in the coming year and possibly beyond. Although everyone has their own opinion, most banking and financial experts would agree on one: compliance will be of great importance to financial institutions as they face a more complex regulatory landscape.

The Rise of RegTech

We will see a rise in the adoption of Regulatory Technology (RegTech) in the financial industry during 2024. According to Juniper Research, the RegTech sector is projected to reach 127 billion in the next 12 months.

The use of technology to improve regulatory processes in industries with strict regulations is nothing new and Regulatory Technologies initially appeared as a response to the increase in financial sector regulations following the 2008 housing crisis.

RegTech companies achieve their goals and develop their systems using several types of technologies in the form of Cloud-Based Software, predictive analytics and machine learning. These technologies have been used to aid in areas such as risk management and regulatory reporting among others.

Enter AI

In 2024 and beyond, Artificial Intelligence (AI) may be destined to lead the charge in terms of impactful change. AI is expected to stand in the frontlines of RegTech in financial institutions in 2024 for several reasons, including:

Transformative potential: We have seen AI’s ability to analyze vast amounts of data quickly and accurately. By converting raw data into actionable insights, AI can help financial institutions detect and prevent fraud. The AI tools created by RegTech companies can also allow financial brands to conduct real-time monitoring. This helps to reduce the risk of regulatory breaches and penalties.

Automation: Compliance is associated with countless resource consuming, repetitive actions. AI can efficiently manage repetitive tasks such as risk identification and mitigation, fraud detection, and anti-money laundering protocols, which will reduce the resources needed to effectively manage the goal.

AI can also automate the process of reporting compliance issues quickly and without human error. The technology offers the potential to transform compliance from a necessity to a strategic advantage. Financial companies can free up time and resources for other activities by using AI to handle certain tasks.

Prediction: Through the use of AI models, companies can quickly read and interpret data from any type of source and provide predictive analysis. By using machine learning algorithms, AI-powered RegTech solutions can analyze substantial amounts of data to find patterns that might pose a compliance risk. This approach empowers institutions to address issues before they escalate, avoiding potential penalties as a result.

Proven Ability

AI has changed the financial services sector by allowing for regulatory and operational improvements. The technology has proven its ability to support risk management and compliance endeavors and these factors will contribute to AI’s growing role in regulatory technologies during 2024.

Applicable to a wide variety of use cases, AI is an incredibly useful tool. As an example, we at Fintel Connect have created a marketing tool designed to automate and monitor content to allow financial brands to catch any content discrepancies before regulators do, saving time and manual effort in this process.

A Delicate Balance

The financial space needs to ensure compliance while supporting a high-quality product for customers. On one hand, they want to bring accessible, innovative solutions to the market while providing great service. On the other, they need to achieve it without jeopardizing the integrity of their business by not adhering to regulations.

To achieve this delicate balance, financial firms will invest in regulatory technology to help them with compliance. According to a report from Juniper Research, the spending on RegTech by financial institutions and other industries will increase by 124% in the next five years, from $83 billion in 2023 to 207 billion in 2028.

AI, in its many forms, can be used for a wide range of tasks, from auditing transactions for potentially fraudulent activity to ensuring a financial institution's marketing is compliant. The adoption of regulatory technology with AI in the financial sector is only going to keep growing.