Compliance 3.0: The Automated Regulatory Intelligence era

Compliance 3.0: The Automated Regulatory Intelligence era
Mark Taylor

Mark Taylor

Senior Editorial Manager

The financial services industry is experiencing unparalleled disruption, and central to this ongoing transformation is the payments sector.


Truly game-changing technologies have been unlocked in recent years via a perfect storm of regulatory measures, societal shifts, and innovative new players entering the space.


From one-click purchases to contactless payments, the convenience and ease of use stemming from embedded finance are having a massive impact on the world around us.


And for a sector moving at warp speed, compliance has risen to become the top ongoing concern amongst executives.


Such frenetic activity has ushered in a new dawn for compliance, where Automated Regulatory Intelligence enables fast-moving businesses to continue growing rapidly, safely, and sustainably.


We are, in short, in the era of Compliance 3.0.

Volume control

A constant stream of ingenuity in payments is fundamentally altering how we conduct business, manage our finances, and make everyday purchases.

As a result, digital transaction numbers are surging.


Pre-pandemic projections for digital payment revenue have been shattered by soaring transaction volumes; it is estimated that global cashless payments will grow by over 80% between 2020 and 2025.


Wary of any aspect of financial services that moves so fast, governments worldwide are realising the need for a modernised financial infrastructure with digital payments at its core.


Be it a revision to the overarching payment laws in the European Union, an entirely new payment system framework in the UK, or the emergence of Open Banking and a plan to regulate digital wallets in the US, the future is one of increasing regulation for players in this market.


Regulatory efforts that once focussed on competition are now scrambling to adapt to the changing landscape, and are targeting the safeguarding of consumer data, cybersecurity, operational resilience, and robust anti-money laundering (AML) and Know Your Customer (KYC) practices.


These ever-tightening regulations present a significant challenge for payments compliance teams who are accustomed to explosive growth and volumes and often do not have the appropriate controls to manage rapid expansion.


Payments have become an environment where firms are exposed to greater regulatory risk than ever before, and as the innovators barrel forward, the task of ensuring they remain within the boundaries falls on increasingly stretched compliance teams.

The evolution of payments compliance

At one time, the function was primarily an enforcement arm of the legal team and disconnected from wider business operations.


The 2008 financial crisis resulted in a broad expansion of the compliance function and its roles and responsibilities, as regulators sought to avoid a repeat of the global meltdown.


As a result, the bottom-up, control-testing approach which had been a feature of the pre-2008 era was phased out in favour of a risk-based approach.

Despite having the ear of C-suites and boards in a manner far removed from before, compliance professionals became familiar with the mantra “do more with less”.


Legacy technologies that had been in place for decades in assisting compliance teams had begun to creak, and in the decade preceding 2008, many businesses began to adopt applications that automated routine operations and reduced the need for resources to be wasted on repetitive, manual tasks.


Today, the volume, velocity and complexity of regulations entering force have broadened so much that it has altered the duty and scope of the compliance function entirely.


Industry surveys consistently highlight the expanding responsibilities and pressures placed on compliance officers, and there is no sense of this easing given the direction of regulatory travel.


The tipping point where manual supervision, basic applications of automation, and reactive adjustments can maintain compliance has long passed.


Long-standing regulations surrounding AML, record-keeping, market abuse, consumer protection, and data processing are becoming stricter, whilst cybersecurity, corporate governance, and operational resilience are increasingly dominating the compliance landscape.


For payments firms wanting to remain on their current growth trajectories, there is little hope of incorporating the deluge of regulation they are facing without the use of machine learning tools.


From horizon scanning and the ability to prepare for major changes, to the automatic updating of policies and controls, the next era of compliance has arrived, bringing a symbiotic partnership between human excellence and machine intelligence.

Compliance 3.0 and the evolution of regulatory change management

Automated Regulatory Intelligence (ARI) solutions have emerged as powerful tools for businesses to transform compliance functions into a function that delivers strategic operational advantages.


Advancing beyond the simple automation solutions of Compliance 2.0, ARI-powered machines can understand the nuances of regulatory issuances and help executives formulate strategies.


Intuitive, risk-based, and robust compliance frameworks can be created, as machine learning algorithms are deployed to ingest vast amounts of regulatory data, filter out noise, and categorise mission-critical information.


This next-generation suite of tools can also analyse regulatory language to such an extent it can present projections that will help teams understand where they should prioritise resources.


Where the previous generation stopped assisting with various processes such as onboarding, KYC, AML, and back-office tasks, ARI goes further in helping compliance teams assist other business lines such as marketing, HR, and the finance office.


It has long been known that the automation of routine processes frees valuable time for compliance officers, but today executives focus on analysing the impact of important regulatory changes and become a true enabler of business during times of immense change and uncertainty.

The road ahead

The soaring rate of digital transactions and the ever-changing regulatory environment have led us to the era of Compliance 3.0.


This represents a shift towards data-driven, risk-based compliance frameworks that enhance operational efficiency and enable businesses to navigate regulatory complexities with confidence.


As compliance executives embrace ARI solutions, they position their organisations for sustained growth and success in an increasingly regulated financial landscape.


To meet the challenges ahead, there are some considerations of how to best leverage Automated Regulatory Intelligence in the compliance function.


Data Quality

The effectiveness of any AI solutions hinges on the quality and quantity of data they are trained on. Payments firms must ensure their data is accurate, complete, and up to date to get the most out of Automated Regulatory Intelligence.


Explainability

Understanding how AI systems arrive at decisions is crucial for building trust and ensuring regulatory compliance. Compliance teams need to be able to explain AI-driven decisions to regulators and stakeholders.


Human Oversight

AI should be seen as an augmentation tool, not a replacement for human expertise and judgement. Compliance officers will continue to play a vital role in interpreting regulations, making complex decisions, and ensuring ethical compliance practices.


The era of Compliance 3.0 heralds a symbiotic partnership between human expertise and machine intelligence.


Automated Regulatory Intelligence offers payment firms a path forward, enabling businesses to navigate the complexities of regulatory landscapes with agility and precision, ensuring rock-solid adherence to existing regulations whilst anticipating and preparing for changes no matter how turbulent the environment.