The enhancement of the legislative framework is strongly affecting the competitiveness of European financial centres. Legal departments face exponential regulatory changes to incorporate into Compliance Monitoring Programmes. To tackle this challenge, consulting firm Reply and a Luxembourg fund management company have partnered to deploy a tailored Generative AI solution to and support Compliance Monitoring processes. The rapid evolution of the regulatory landscape has significantly impacted various aspects of the financial sector. For instance, the EU regulatory framework, encompassing directives like the Markets in Financial Instruments Directive (MiFID II), the General Data Protection Regulation (GDPR), and the upcoming Digital Operational Resilience Act (DORA), mandates financial entities to continuously adapt their compliance processes. Failure to adhere to these requirements can result in severe repercussions, affecting both reputation and business continuity.
The responsibilities of the second Line of Defence have become central, as they must ensure that all processes align with regulatory standards. However, financial entities often operate globally, with branches in different regions, each subject to unique regulations. This diversity induces a comprehensive and adaptable compliance strategy to ensure effective controls. Leveraging advanced technology, particularly Generative AI, can be of particular interest in addressing these challenges.
Introduction of Digital CMP
Reply has developed a tool that enhances flexibility, agility, and operational efficiency and has launched a proof of concept of this solution tailored to Credit Agricole Indosuez Wealth Management. Explore this particular solution and business case here.
"The compliance department must ensure that we operate in a way that meets all regulations. The challenge is to grasp the level, the quantity, and the complexity of those regulations which apply to the companies. Once you've reviewed these regulations, you must organise them into a Compliance Monitoring Program. This task is time-consuming because it requires visiting various regulators' websites. Being in Europe means complying with 27 different regulators" explained Liévin Tshikali, CCO at Crédit Agricole Indosuez Wealth Management.
Effectively performing these tasks requires coordination between the first and second Lines of Defence and skilled staff to collect all the legal requirements from different parts of the world. Therefore, financial entities must have the capacity and resources to fulfill their duties. However, they struggle to hire and retain skilled personnel due to intense competition in the labor market.
"What we see in the market is a regulatory wave which has increased for several years and financial services companies struggle to grasp all the regulatory evolutions in different countries. Consequently, they need more people and cooperation between the 1st and 2nd Line of Defence. This reality is transforming the role of compliance officers and risk managers into something more operational" explained Hugo Larguinho Brás, Partner at Reply.
Implementing Generative AI and regulatory efficiency
Concretely, the tool continuously monitors the public websites of all relevant regulators, searching for updates such as new directives, laws, circulars, guidelines, and Q&A. When an update or a change is detected, the Compliance Officer reviews and validates it. The tool also performs a 4-eyes validation function allowing the Compliance Officer to amend, create, or delete content. Furthermore, it includes a notification function to inform & instruct relevant stakeholders about the regulatory changes. In addition, the tool offers a GEN AI chat function, enabling users to quickly assess information related to all regulations and the Compliance Monitoring Plan content.
"We had the idea to use GEN AI to help human beings in terms of summarizing the existing regulation, analysing the difference between current and previous laws" explained Stephane Dorrekens, Partner at Zest Reply.
The digital CMP offers the following functionalities:
(1) It provides all regulatory requirements ordered by category i.e., Governance, Financial Crime, Oversight, Marketing… (2) it provides inherent risk details i.e., financial risk, reputational risk, complexity, occurrences… (3) it provides control measures i.e., definition, dates, policies & procedures, type, frequency, incidents… (4) it provides residual risk i.e., automatically calculated, with an audit track record. (5) it analyses & summarizes the content (6) it identifies the impacted control(s) of the Compliance Monitoring Plan (7) it proposes a redefinition of the impacted controls to comply with the new regulatory evolution (8) it notifies the Compliance Officer via email, asking them to review and approve the proposed definition
An integrated solution for compliance
This technology's purpose is to reduce human efforts and minimise regulatory risks. By automating the recurrent operational tasks such as compliance monitoring plans, governance, and regulatory reports, Generative AI decreases the burden on Compliance, Risk Management, and Internal Audit teams, allowing them to focus on other strategic tasks.
"We have seen a good cooperation between compliance and IT people. This brainstorming allows us to have a product that meets our needs" explained Liévin Tshikali, CCO at Crédit Agricole Indosuez Wealth Management.
Generative AI represents a paradigm shift in how financial services and asset management firms approach regulatory watch and compliance monitoring. This technology enhances the efficiency and productivity of compliance personnel while reducing the risk of non-compliance and errors in a constantly changing regulatory environment. It facilitates information research on regulatory updates, analyses, and compares specific regulations. It is a personalized solution that can be easily deployed in a few weeks, providing a significant competitive advantage to compliance professionals.
To help industry leaders harness the power of this technology, ZEST Reply is launching a four-session training on GenAI for CEOs starting in September. This training aims to equip top executives with the knowledge and tools needed to leverage Generative AI effectively, ensuring their organizations stay ahead in the regulatory landscape. For more information, please contact