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 Regulatory Trend Spotting: AI & Innovation

Risk & Compliance

 Regulatory Trend Spotting: AI & Innovation

Posted by Michael Berman on Aug 25, 2021 6:00:00 AM
Michael Berman


Bankers always want to know: What are regulators going to do next?  

It’s not a question that requires a crystal ball—just some good analytics. That’s the message Mary Kopczynski, CEO and founder of 8of9 and RegAlytics in New York City, shared on a recent episode of the Ncast podcast. Her companies’ analysis of regulatory alerts helps identify regulatory trends so bankers can anticipate and prepare for the regulatory environment ahead. 

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“What I find really interesting is how many market signals there are. I can really trend spot and see a regulatory alert come out and I think ‘This is the focus area. This is what's going to happen for the next six months,’” she says.  

What can we expect on the road ahead? Artificial intelligence (AI) will continue to play a growing role in regulatory change management, she says.  

For example, FINRA recently plugged trade data into an artificial intelligence bot. It discovered that a very specific financial product was sitting in the long-term portfolios of some customers when it should have been in the short-term portfolios. That indicated that investment advisors weren’t being properly trained on that product. It was also able to identify five broker dealers struggling with the problem in one week.  

Related: Don’t Fear Artificial Intelligence: A Primer for AI in Risk & Compliance Management (Part 1)

Studying trends across over 3,000 regulators, Kopczynski says that regulators are very concerned about equity and AI. While federal banking regulators are gathering comments and data to understand the challenges and opportunities of AI, some states are taking action. Connecticut is mandating that the insurance industry demonstrate that its use of AI is equitable, while at least one other state is considering regulating the use of AI in hiring decisions by registering AI programs used to decide who will get an employment interview, she says. While it’s unknown if this idea will make it into law, we do know that similar regulations will continue to be proposed. 

“If you put in an artificial intelligence bot to decide who gets car insurance and it has an inequitable result, then you have a whole section of humanity that has been kind of set aside because the math doesn't work for them,” says Kopczynski. “The regulators are very concerned about that.” 

Another emerging regulatory risk is climate risk. This year the Securities and Exchange Commission created a climate risk enforcement task force this year and included it in its 2020 exam priorities.  

“What that really means is that every publicly traded company is now going to be expected to have a plan and a discussion about climate risk,” she says.  

Meanwhile, signals like NASDAQ’s desire to see increased board diversity suggests more regulatory interest in diversity and inclusion. 

Want more insights into regulatory trends from Kopczynski and other industry experts? Subscribe to the Ncast on your favorite podcast platform.  

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Topics: Risk & Compliance, Regulatory Compliance Management,

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