A step-by-step guide to AI implementation in financial crime compliance

AI is increasingly becoming a focal point of discussion, particularly in how compliance departments within financial institutions prepare to adopt AI technologies for client screening and align with necessary regulatory standards.

Napier AI’s chief data scientist, Dr Janet Bastiman, has broken down the essential steps financial institutions must follow when integrating AI into their financial crime compliance workflows.

AI-powered risk scoring systems offer financial institutions the capability to delve deeper into the reasons behind flagged transactions or clients, achieving more precise outcomes. In a data-driven environment, it is crucial to stay ahead of potential risks and fully grasp the intricacies of customer profiles.

However, it’s critical for institutions to undertake certain preparatory steps before deploying AI to ensure it enhances processes effectively. Jumping straight into AI implementation without due preparation could lead to suboptimal outcomes, highlighting the importance of several preliminary considerations.

Step 1: Readiness and maturity assessment

The first step involves a thorough evaluation of an institution’s business processes to identify strengths and areas for improvement, which helps in determining AI readiness. Financial institutions need to ascertain their capability to gather comprehensive customer information to prevent criminals from exploiting any data gaps. This includes maintaining robust data practices for storing and updating information, and when using external data sources, verifying their accuracy and reliability.

Step 2: Regulatory environment assessment

The regulatory landscape is also crucial. The location of an organisation and its subsidiaries, along with the business type, dictate compliance rules which are essential for guiding AI usage. Regulations such as the EU’s General Data Protection Regulation (GDPR) necessitate ongoing evaluation of AI’s impact on individuals to prevent biases. Additionally, frameworks like the UK government’s pro-innovation regulatory strategy for AI and the EU AI directive demand explainable AI systems to uphold individuals’ rights to understand automated decisions affecting them.

Step 3: Risk assessment

This step provides a comprehensive view of the primary financial crime risks facing the organisation, emerging threats, and any shifts in the institution’s risk appetite. It informs on the types of data needed to manage these risks and potential control measures to mitigate them.

Step 4: Drilling down on the data

For effective AI implementation, compliance teams must leverage a strategic approach that places data analytics at the forefront of fighting financial crime. Data is often scattered across various business units or stored in disparate systems, creating challenges in data consolidation. Identifying, accessing, validating, and ensuring the reliability of data are crucial steps in preparing for AI adoption.

Step 5: Business operating model definition

Defining the purpose of AI within the broader financial crime compliance and business operating model is crucial. This ensures that the AI’s outputs are relevant and can be seamlessly integrated into existing workflows.

Step 6: Market analysis and vendor selection

The final preparatory stage involves market analysis to identify suitable RegTech solutions that are modern, scalable, and offer no-code features to facilitate easy adoption and understanding of AI processes by analysts.

By carefully considering these steps, financial institutions can confidently approach the implementation of AI in client screening, significantly enhancing financial crime compliance processes.

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