Nine in ten alternative fund managers use AI for risk and compliance procedures
Two thirds (66%) of alternative fund managers have been using AI as part of risk and compliance procedures for two years or more. Of those that don’t already, 71% say they intend to start using AI within the next six months.
New research* from Ocorian, a market leader in regulation and compliance services for funds, corporates, capital markets and private clients reveals that more than nine in ten (92%) alternative fund managers are already using AI as part of risk and compliance procedures.
The international study among senior leaders and senior compliance and risk executives at alternative fund manager firms which collectively manage around US$132.25 billion AUM, found that of those who already use AI as part of its risk and compliance procedures one in ten (11%) started doing so more than two years ago. Over half (55%) started two years ago, and 24% started between one and two years ago.
Ocorian’s global study reveals that out of those who don’t already, 71% say that they intend to start using AI within its risk and compliance functions within the next six months.
There are a number of areas in which alternative fund managers think AI can be used to enhance risk and compliance procedures. The top area given was in transaction monitoring (28%), followed by staff filings (21%) and internal capital and liquidity monitoring (20%). AI can also be used to monitor communications (19%) and financial promotions (13%).
Joe French, Managing Director and Head of Financial Crime at Ocorian, said: “AI is revolutionising almost every aspect of financial services, and our survey results show that the majority of alternative fund managers have already been using AI within their compliance and risk procedures for around two years. When used for the right type of tasks, AI can transform the ability of over-stretched, under-resourced compliance teams.
“AI promises to create transformational changes in our industry but human input is going remain critical – take algorithmic trading; the FCA require humans to intervene in machine processes for vital checks and to stop runaway errors potentially taking down global markets.
“The potential dangers are industry shattering. And thinking of the risks, just as the industry incorporates the new technology, so do criminals. Bad actors are using technology including AI to target consumers and firms. In recent years they have been able to circumvent banking controls by using sophisticated social engineering techniques to trick victims, making detection much more challenging.
“Firms must ensure that systems and controls keep up with the increasing sophistication of criminal groups and should use the advances in technologies to help prevent financial crime. They have to calibrate their use of technology to individual requirements to be as effective as possible and keep fine tuning their response to combat the rapidly evolving threat.”
Hilton Goudriaan, Head of Systems, Regulatory & Compliance at Ocorian, said: “AI tools can process and analyse large datasets, which can assist with aiding alternative fund managers in meeting reporting standards, analysing market trends, portfolio risks, and identifying potential compliance issues. AI can be developed to streamline due diligence processes. Automation tools, such as our comprehensive compliance solution, the Gateway, go the extra mile and support teams with fully inclusive diarised risk-based compliance monitoring programmes, online training, manuals, and guides. It’s clear to us that early adopters and first movers in this space will keep the edge when it comes to regulatory developments and evolving global risks.”
Assisting with a broad range of compliance services Ocorian’s subsidiary compliance consultancy service, Newgate Compliance, delivers pragmatic and flexible solutions to help clients meet often complex, evolving and increasing regulatory obligations. The team led by industry experts and ex regulators helps clients with the submission of regulatory authorisation applications, provision of Money Laundering Reporting Officers (MLROs), the implementation of compliance frameworks and governance structures, as well as regulatory and compliance training for employees.
*Ocorian commissioned independent research company PureProfile to conduct a global study (across the US, UK, Germany, Brazil, Singapore, Hong Kong, UAE, Turkey, Quatar, Saudi Arabia and Mauritius) of 101 senior executives, regulation and compliance executives working at alternative fund manager firms (including private equity, venture capital, real estate, infrastructure, private debt, renewables and hedge funds) during January 2024.
