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The effect of Artificial intelligence on Financial Regulatory Compliance


The Two-faced Artificial Intelligence on Financial Regulatory Compliance

As we witness the financial scandals breeding our systems, the regulatory bodies have stepped up the game and started policing these petty acts with installed laws and regulations. By doing so, the financial institutions are largely head-bent on turning their gaze to artificial intelligence to minimize the fraud vulnerable to these institutions. With technology such as this, the compliance team has shifted its gear to detect the patterns, especially in real-time, while putting forth insights alien to ordinary systems.

It is not unusual to our eyes how the wider usage of artificial intelligence cannot be ignored but felt silently, as it emerges as an effective tool in fishing out fraud detection or money laundering cases, which is disguised well.

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In the blink of an eye, the AI has marched efficiently at a breakneck speed; whether it is pulling us closer or pushing us apart, it continues to outwit our intelligence as always.

On the flip side, artificial intelligence comes with its loopholes, serving as a maker and destroyer of its power Astra. Interestingly, it can identify generative AI as it continues to imitate patterns, which otherwise you would not have anticipated. This is where the AI is waging a war between the two, which is the Rule Breaker vs. the Rule Maker. Let us see how both of them continue to outwit each other in the realms of financial Regulatory Compliance. 

Gauge the risks  

Suppose we had to gauge the risks associated with generative AI or large language models. In that case, we need to teach ourselves the unsung power of artificial intelligence in accessing the datasets, which generally allows it to learn those patterns and generate the outputs. AI tools may act as a roadblock to data privacy, which might hijack the system and disguise itself under those pretentious masks of technology. 

Unquestionably, AI generative tools have a way of infringing upon private data, riding a roughshod over data leaks, and intervening with large language models, which in itself has the potential to invite unnecessary legal disputes. With that being said, this very loophole is utilized by those who wish to utilize AI to commit the offense.

With it, fraud has a way of disguising itself amidst technology while enjoying the relaxation it is bestowed with. To elaborate, generative AI is programmed in such a manner that it can take shape in spreading a piece of false information, along with theories or propaganda. 

As a consequence, generative AI models can employ their capabilities to commit financial crimes, such as engaging in money laundering operations. This grants these criminals and advantage by allowing them to carry out destructive activities under the guise of creating counterfeit invoices and falsifying financial records. It is a malicious curse that specifically targets the identification of legislative loopholes, potentially enabling the transfer of illicit funds to other accounts. This nefarious phenomenon primarily revolves around the deceptive facade of financial crimes, thereby contributing to fraudulent activities.

Adoption of Artificial Intelligence in Financial Crime Detection

The AI possesses an extraordinary ability that courses through its core, enabling it to excel in crucial tasks related to crime detection in the financial realm. These advanced technologies can handle cases like money laundering and fraud detection effectively by eliminating any potential loopholes. For instance, this enables easier identification of financial risks, promotes compliance, and allows AI to play an active role in the process.

Nonetheless, let us know and realize the application of artificial intelligence in financial crime detection- 

  • Fraud detection

Fraud detection is a well-known form of financial crime that has deceived both organizations and individuals, leaving them as victims. However, with the emergence of artificial intelligence, this technology can stay one step ahead by detecting fraudulent activities and analysing datasets to identify unusual patterns. It's not surprising that AI tools are incredibly dependable, as they can examine transactions in real-time and track any unusual patterns that may arise.

  • Anti-Money Laundering

It is widely believed and understood that anti-money laundering is no new affair. It is an illegal act to obtain the funds and silently make them legitimate, mainly through the procedures of financial transactions, which might hint towards anti-money laundering activities. It is with the existence of the ML models that it is able to detect the patterns and behaviours of layering, smurfing, or ensuring circular transactions. Once these financial crimes are detected using AI, these institutions would be even more responsible for adhering to the regulatory requirements while eliminating any risks of exploitation for the fraudsters. 

  • AI-enabled Cybersecurity

As financial services increasingly venture into the digital realm, the risk of cybercrime leading to a data breach becomes a concern. This could potentially create an opportunity for AI to step in and address this vulnerability. By bolstering cybersecurity measures, AI can effectively tackle threats that have the potential to cause substantial harm.

Besides, the usage of AI is being utilized as an inspector in identifying as well as analysing personal or financial data, which raises utmost concern about the very act of misuse of information, leading to the hijacking of privacy. Now, all we require is to ensure compliance while sticking to the data protection regulations. 

Final Thoughts on AI: A Hero or Villain?

AI has been a rule-breaker and solver, which has offered innumerable alternatives to cater to financial crime where it has to cater to the Financial Regulatory Framework. Unaware of what the future has in store for AI, we suspect that this technology will surely cater to financial crime detection by introducing the weapon of AML as well as other means of fraud prevention. It is via that regulatory requirements and compliance can be ensured. 

However, not all that glitter is gold. As much as AI remains invincible, the greater the difficulty will be to deal with the same force and outwit them. No wonder it can be highly misused, leading to imitating the datasets, ensuring the data breach, or benefiting the fraudsters. It lures them even more while enabling them to attempt such financial crimes.

The point is that transparency has to be ensured when it is about leading the art of decision-making or reporting to ensure regulatory compliance. With the ever-growing need to cater to financial regulations, or compliance for that matter, compliance may step in and mold itself in the face of evolving changes. 

Through this financial sector, AI can be leveraged in the financial sector while exercising the potential of this technology for the years to come.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not corpseed, and have not been evaluated by corpseed for accuracy, completeness, or changes in the law.


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Hansika Bhardwaj is a versatile writer, editor and poet.  She is a graduate of the University of Delhi with a specialisation in English Literature. As a cherry on the cake, she has worked with various companies dealing with various types o...

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