The Role of AI in Compliance

Ralph Bondadies, SVP/Chief Risk Officer, Parke Bank

Good day my fellow Compliance people. I was asked if I would like to submit an article on Compliance for the NJBankers Quarterly newsletter. As if we are not busy enough, but like many of us, I have issues saying no to anything or anybody. So here I am trying to decide what I would write about that we have not been bombarded with over the years. Don’t we Compliance folk have our noses buried in compliance regulations each and every day? So, I decided to choose something I know little about but is prominent in our daily conversations, Artificial Intelligence (AI). Now, as an old guy that has trouble with computers, as it is, here I am researching and writing on AI. I thought maybe I would learn something and perhaps you may benefit as well. Not to mention the fact that my CEO wants an AI Policy written and in place.

One of the first things I learned was, AI is not new; it has been around for years. You may think AI is a recent development in technology, like in the last several years, right? False, the basis of AI began in the early 1900s but great strides have been made from the 1950s. We have been using AI for quite some time without even knowing it. Have you ever had that feeling that Facebook, Instagram, Alexa, Microsoft, Amazon, and many other programs are reading our minds, or listening to our conversations? Like when we start writing a Google question and Google finishes the question. Or message a friend about something you want to buy or are looking at on Amazon and then suddenly you start getting ads for that product, yup, Artificial Intelligence.

So, what is AI? As defined in Executive Order, 14110, Safe, Secure and Trustworthy Development and Use of Artificial Intelligence, “artificial intelligence” or “AI” is: a machine-based system that can, for a given set of human-defined objectives, make predictions, recommendations, or decisions influencing real or virtual environments. Artificial intelligence systems use machine and human based inputs to perceive real and virtual environments; abstract such perceptions into models through analysis in an automated manner; and use model inference to formulate options for information or action.

AI is prominent today and in use at many financial service providers. It is estimated that 32% of financial service providers are currently using AI and that is expected to grow to more than half the financial service providers by this year. Most of the AI usage today is centered around customer service. AI automates the routine customer service tasks including account balance inquiries, password resets, verifying customers identities, opening accounts, etc., which frees up customer service reps to focus on selling products and services.

In my career, I have used the following statement all too often when speaking with Senior Management; “Compliance runs the Bank.” AI is going to be an invaluable tool for all Compliance Officers, BSA Officers, Department Managers and the like as we get buried deeper and deeper in regulations. Compliance gets more sophisticated every day and AI is a big part of the programs that help us determine compliance with money laundering programs, monitoring computer activity for cyber threats that get stopped at the firewalls, protection of our customer accounts from frauds by restricting suspicious transactions, and many other threats.

These items are just the tip of what we are looking at. The days of reviewing reports and computer screens of information generated by our support systems, need to be enhanced and Artificial Intelligence is the enhancement that is going to help us stay in compliance with all the regulatory requirements that are here and coming. Regulations get outdated. Congress and regulators are re-writing them. How are we going to keep up? My greatest concern has always been having something right in front of my face and not seeing it. Artificial Intelligence is the new set of glasses that will help us see what we could not see before.

Ralph Bondadies is SVP/Chief Risk Officer of Parke Bank.