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How AI is changing the Risk Management & Compliance

In this increasing debate over AI, in how it is good for mankind, and on the other side, how it is going to take away our jobs, what is the right answer?

I would take the analogy of the advent of cars, trains or airplanes, in the times when people used horse carriages, horses or bullock carts. What was the advantage of a motor car or the train? Well, it reduced the time of travel, brought efficiency in terms of speed, reliability and saved valuable hours. So did the creation of an airplane, which made traveling across the globe a viable and easier options for the masses. If we look at the AI and machine learning today, it seems that it is no different from graduating from the horse driven carriage to a car.

Now, Artificial Intelligence (AI) is affecting multiple areas of our lives, like AI driven cars, back office automations, machines learning to operate non-stop operations and doing tasks in minutes, what would take a person perhaps a week to do the same manually.

Risk Management is no exception to this. Fintechs and Banks are introducing Artificial Intelligence (AI) applications in risk management in a limited way, but these applications are also finding usage in the areas of investment decision making that is supported by huge amounts of data, Hedge Funds and Asset Managers are using high speed trading using complex models. At the same time, phone based market making is giving way to electronic execution. Market Makers and Asset Managers are now looking to use technology and Artificial Intelligence (AI) to assess the risk of the counterparties from the publicly and privately available data. 


Shifting roles of Risk Managers from Manual analysis to Predictive Analytics and Artificial Intelligence

The increasing use of Artificial Intelligence (AI) in Risk Management will have profound impact in the way firms and financial services organizations manage their risk. A lot of emphasis is put on monitoring the risk in the operations with less focus on real analytics. With the increasing use of Artificial Intelligence (AI) and machine learning, it is estimated that the focus of risk managers will shift towards analytics and stopping losses in a proactive manner, rather than spending time in managing the risks inherent in the operational processes.

Today, firms are developing Operational Risk platforms by scouring the internet for all encompassing information about an organization with the help of Machine learning and Artificial Intelligence (AI). The day is not far when traders, asset managers and risk managers will actively resort to Artificial Intelligence (AI) based platforms to monitor counterparty credit risk and operational risk of the entities that they are dealing with.

AI is here and it’s time for Risk Managers and Financial Services to embrace the benefits of this technology.



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