Deciphering the fusion of AI and human expertise in Risk Management and KYC compliance

The ongoing AI revolution is indisputably transforming risk management and customer identification processes (KYC), even though human input remains pivotal to these functions. Moody’s Analytics recently delved into how AI will transform risk management and know your customer (KYC) compliance.

Two main reasons underscore this human-AI necessity. Firstly, humans bear the legal responsibility for compliance with Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) laws; AI tools can’t shoulder these obligations. Secondly, human skill and ingenuity, in conjunction with varying AI types and AI compliance solutions, offer enormous promise to reconfigure how companies perceive risk and decide their business associates.

AI’s ability to improve risk management is already evident. Through machine learning, it can analyse enormous data volumes, detect patterns and spot anomalies, enabling swift action from compliance teams and consequently, risk reduction. In the not-so-distant future, supervised and unsupervised AI, along with reinforcement learning, are set to further bolster risk management structures.

Automated processes are currently reshaping AML and KYC compliance. They reduce manual work, collate data, and decipher content meaning to boost efficiency. For instance, natural language processing (NLP) algorithms extract and examine risk-related data from client documents to speed up and enhance due diligence. Additionally, AI-powered anomaly detection aids in uncovering suspicious transactions, supporting anti-financial crime initiatives.

AI’s continued evolution heralds the rise of new technologies like explainable AI (XAI), enhancing the transparency and comprehensibility of AI decision-making. AI advancements will also allow organisations to foresee and ready themselves for future financial crime risks through advanced simulation and scenario modelling.

The future will likely witness an increased partnership among AI systems, enabling data aggregation and analysis from various sources. This integrated method, coupled with human assessment and creativity, should offer extensive insights into customer and supplier risk profiles, and highlight unusual behaviours.

Despite AI’s enormous potential, the human touch remains indispensable for interpreting complex risks and understanding nuanced scenarios. Generative AI models, for instance, can inform and enhance human decisions, but they are not a complete solution. It will be invaluable to use GenAI’s capabilities in the risk assessment process, especially when guided by a seasoned professional making critical decisions.

Human experts are essential to supervise and validate AI-driven KYC processes to ensure ethical and fair results. They are also crucial for training AI models, fine-tuning algorithms, and confirming result accuracy. They play a key role in contextualising AI results and understanding the limits of automated systems.

Moody’s Analytics offers data orchestration, human expertise, and explainable AI models to assist organisations. Their intelligent screening solution offers transparent AI that enhances automation and efficiency in KYC screening and risk monitoring. It’s designed to address specific problems in line with risk appetite and compliance expectations, using a supervised learning model that offers decision traceability. They emphasise the importance of coupling human expertise with AI models for investigating alerts and providing oversight.

Read the full report here.

Keep up with all the latest FinTech news here

Copyright © 2023 FinTech Global

Enjoyed the story? 

Subscribe to our weekly RegTech newsletter and get the latest industry news & research

Copyright © 2018 RegTech Analyst


The following investor(s) were tagged in this article.