AI For Regulatory Compliance in Payments

Artificial Intelligence and Machine Learning are revolutionizing the financial and business world. The automation of complex tasks can open up possibilities for increased productivity, and improvement in the quality of services rendered, and a reduction in overall operational costs.

Regulatory Compliance and AI

Within the world of fintech, compliance is crucial. Compliance refers to a broad set of financial regulations and the actions taken to adhere to those rules and standards.

All financial entities are subject to these rules by regulatory bodies. The specific regulations can change from region to region. But these financial regulations espouse a certain set of principles that aim to protect the consumer, maintain the integrity of financial systems, and prevent fraud and illegal financial activity that can be used to fund criminal activities or terrorism.

Fintech companies such as Rapyd are tasked with developing their own financial integrations and networks that are grafted into the larger global financial system. Fintech companies must receive operational licenses from regulatory authorities in order to exchange money and offer financial services. Without these licenses, a company cannot operate in that specific area.

Most established fintech companies have a Compliance department that ensures that the company adheres to the financial regulations where they operate. Knowing the rules is the first step. But following the rules when handling thousands upon thousands of real-time transactions requires vigilance.

Depending on the type of transaction, approval may be needed before hand. After a transaction is completed, the transaction is recorded in a ledger that can be viewed later. The data sets that the ledgers contain are a valuable asset for regular audits.

To ensure the best possible outcome, the Know Your Business (KYB) and Know Your Customer (KYC) processes are used to verify the identity of potential merchants and customers that wish to conduct business with Rapyd. The KYB process verifies the company identity, while the KYC process verifies personal identity.

Any warning signals or complications are handled by Compliance. In addition, the Compliance department ensures that approved transactions are following the financial regulations established by global regulators.

By following regulatory compliance procedures in real-time, Rapyd establishes itself as a trustworthy financial entity. Furthermore, it helps to smooth the process of regular financial audits that are required of all financial entities.

Benefits of AI in Compliance

But the day to day work of a Compliance officer can be repetitive. Their work involves manually reviewing paperwork, regulatory filings, and monitoring transaction data.

Artificial Intelligence and machine learning are beneficial to Compliance officers because they offer a unique tool that can analyze vast amounts of data to look for discrepancies and red flags among thousands of financial logs.

AI improves compliance efforts because it enables the volume of data that is processed concurrently to be increased. Artificial Intelligence also has the ability to work 24 hours in a day, which can provide around the clock monitoring while human Compliance officers are not at work. This allows for safer and more robust safeguards that better address the complexity of global financial networks.

AI also provides serious advantages to spotting slight variances in vast data sets. Although AI is a tool that does not have the ability to replace a Compliance officer, it allows each member of the Compliance team to significantly expand their reach and cover more ground. This allows violations of regulatory standards to be spotted faster. Increased response time allows for a more robust financial system that is more resilient when illicit financial activity is introduced by bad actors.

Regulators and auditors can also benefit from using Artificial Intelligence. AI can be used to increase the speed and accuracy of regulatory audits. It may also allow a single auditor to monitor many different companies simultaneously.

Ethics and AI

But AI must also be used in an ethical manner. AI uses Machine Learning to integrate patterns of behavior based on the data that is provided. The data used in the financial world is full of sensitive and confidential information. The personal data provided to AI must be protected through anonymization.

Anonymized data can be achieved through the use of tokenization. Tokenization refers to a process where a piece of information is encoded into a string of alphanumeric characters.

AI must also be used in a way that complies with existing law. The European Union has recently passed a law regulating the use of AI. These existing safeguards must be followed to ensure that AI is used equitably and to everyone’s benefit.

Machine Learning and Artificial Intelligence are important tools that contain great potential in monitoring and protecting financial networks. AI can be leveraged to expand and enhance regulatory compliance.