Almost one third of financial firms embrace AI for communications compliance

Eyewatering fines from regulators for breaching compliance rules on communications has got financial firms seeking assistance from AI solutions.

A new report published today (March 25) by Global Relay, which provides communication compliance and archiving solutions, reveals that 31% of respondents to its global survey are using AI for communications surveillance, or plan to do so in the next 12 months.

Last September, the SEC charged 12 firms, including broker-dealers and investment advisers, for failing to maintain and preserve electronic communications, violating federal recordkeeping laws and fined them a combined $88 million among a total of $8 billion levied in 2024. Earlier this year, 12 firms were fined $63 million for record-keeping violations relating to communications.

OUTDATED SYSTEMS

Global Relay says that fines like these have led to reduced reluctance among financial services firms to use AI for communication surveillance to the replace outdated lexicon-based monitoring tools that are attracting interest from regulators, although data security, budget, explainability and transparency, and push back from internal teams are the main barriers to AI adoption.

Lexicon solutions require manual monitoring of keywords which can be hard to track, while AI solutions are credited with reducing false positives, improving risk identification, and execute voice transcription.

“The whole world of surveillance has been about dealing with overwhelming volumes of false positives. Everything you did was eliciting 100 false positives for every one legitimate red flag to investigate. AI flips this over,” said Donald McElligott, VP of compliance supervision. “The days of throwing people (and thus, salaries) at a big pile of data and sifting through to find a couple of needles in a haystack are gone. AI only identifies real risks, making compliance more efficient and precision driven.”

WAIT AND SEE

The research also indicates that 38% of respondents are watching how the industry develops to determine whether to use AI in surveillance processes, as regulators across jurisdictions have taken several different approaches to AI’s adoption.

Recently, the global Financial Stability Board says that, while AI comes with great benefits for the sector, it also poses some threats that could lead to weakened financial stability. The use of AI for supervision is one area that the FSB report highlights as potentially risky due to rapid adoption and limited data on AI usage, posing “challenges for monitoring vulnerabilities and potential financial stability implications.”