The Hong Kong Institute for Monetary and Financial Research(HKIMR), the Hong Kong Academy of Finance (AoF) research wing, is involved in carrying out research studies in areas of strategic importance for the development of Hong Kong financial industry.
HKIMR released an Applied Research Report Titled “Artificial Intelligence in Banking: The Changing Landscape in Compliance and Supervision” on 21st August 2020. And this is the second such report released by the research entity, focusing on the topics highly relevant to the financial industry and the regulators in Hong Kong.
The report is based on an HKMA survey on AI applications in the banking industry conducted in 2019. The study results indicated that AI technologies are an integral part of the industry across several key functional areas, including front and back operations, risk management, and customer services. And it is clear that banks are going to be adopting the technology in more areas in the future as it helps reduce cost, improve efficiency, and enhance the way they manage risks. But utilizing such disruptive technologies comes with its risks and challenges, as highlighted by the survey results, and the report provides valuable insights to managing it effectively.
The role of AI in potentially redefining the Compliance and the Supervisory landscape is presented in chapter four, where how AI is being used to automate processes is discussed. Such efforts in this regard are seen as being advantageous for both the banks and the regulators, as it helps the banks to meet the compliance requirements effectively and aids the regulators to monitor the risk efficiently.
But the limitations of RegTech in some areas of Compliance are also pointed out. For example, though AI can automate most part of the Regulatory Report generating process, human intelligence is still required to decide on the scope of data that is to be reported to the regulators. Similarly, AI is helpful in fraud detection, but human intervention is required to investigate the suspected case. So, Artificial Intelligence cannot replace Human Intelligence but can be a complementing solution.
Yet, considering the potential to automate a considerable part of the compliance process using AI, supportive measures such as Sandbox and Chatroom are provided by HKMA to enable the adoption of AI in RegTech. HKMA has also rolled out new initiatives to explore the use of RegTech further in areas such as AML surveillance, Risk Management, and Compliance. With such measures in place, the Hong Kong banking industry can be expected to evolve and grow, with the possibilities of new opportunities, aided by the advent of AI in RegTech.
To read the full report, click here to access the pdf in the Hong Kong Academy of Finance official website.
