CXOToday has engaged in an exclusive interview with Mr. Venu Murthy, CTO, Aparajitha Corporate Services
- While AI’s ability in understanding patterns will help the Banking, Financial Services and Insurance (BFSI) sector become compliant, how are they going to deal with complexities of the constantly evolving policies and rules across the nation and even within the states?
The role of AI in helping the BFSI sector becoming compliant is undeniable. Its ability to understand patterns and data will increase their efficiency and save them from legal battles. India is a complex country with rules and regulations varying from region to region, especially for factory or land related compliances. The catch lies in effective implementation and constant human oversight to train the AI model.
For instance, AI can scan large volume of legal text and notify changes, even categorizing them by region. This simplifies and expedites tasks, and helps experts to focus on understanding the updates and their implications. It should also be trained on existing compliance framework and historical enforcement actions for identifying potential compliance risks in new policies or situations. But the industry needs to ensure their data is comprehensive, upto-date and covers all relevant regions and regulations imposed on those regions to enhance the effectiveness of AI.
Having said this, AI can sometimes be tricky, making it difficult to understand how it arrives at its conclusions. This is a problem in a compliance setting where transparency and staying on top of the regulatory nitty-gritty is key. This underlines the importance to invest in “explainable AI” to gauge the process.
- Implementing cost-effective AI is a challenge. How do you think the BFSI is going to overcome this challenge? Are there any other alternative solutions for small companies? If yes, what are they?
Implementing cost-effective AI solutions poses some challenges for both large and small financial institutions in India. The costs associated with training and fine-tuning AI models are influenced by the volume, quality, and availability of the necessary data. Additionally, the time and resources required to gather, refine, and organize this data contribute to the overall project expenses.
In this context, companies can benefit from identifying specific areas where AI can provide the most value. By outsourcing AI-based compliance solutions, organizations can often achieve cost efficiency compared to building in-house capacities. Third-party experts can offer targeted and customized AI solutions, which can be more affordable and tailored to any given company’s needs.
Engaging with external support can enhance resource accessibility and allow for the customization of AI solutions to better align with organizational requirements. Moreover, automating repetitive tasks, such as data entry and document review, can help companies stay timely and avoid the hefty penalties associated with compliance delays. This approach also frees up the in-house team to concentrate on strategic compliance initiatives and proactive risk management, ultimately contributing to more effective and efficient operations.
- Integrating AI into compliance also raises questions about data security and privacy. How can organisations and institutions find solutions to these issues?
I’m very optimistic about AI’s potential to transform the BFSI sector in India, especially given the diverse and complex regulatory environment that varies across states. AI can significantly enhance efficiency, accuracy, and compliance in these industries.
However, I’m also aware of the talks around data privacy and security. And there cannot be two ways about ensuring user privacy. It could be wise to provide clients with clear opt-in and opt-out options to give them control over their data. Additionally, businesses should implement robust encryption methods to protect data both at rest and in transit. Regular security audits, such as penetration testing and vulnerability assessments, are critical to identifying and addressing potential security threats and ensuring our AI solutions are both fair and secure.
As the data privacy landscape continues to evolve, particularly with regulations like the Digital Personal Data Protection Bill 2022, it is vital that our AI solutions remain compliant and are regularly updated to reflect new legal requirements. This proactive approach will help maintain trust and ensure that our AI initiatives are both effective and responsible.
- Immersive technologies like Virtual Reality are also gaining a lot of traction. How will their role in AML and KYC compliance evolve in 2024?
Immersive technologies such as Virtual Reality (VR) are beginning to revolutionise various sectors, including compliance and Know Your Customer (KYC) processes.
As a compliance solution provider, we should be able to secure VR KYC ecosystems that integrate seamlessly with existing compliance platforms. With more realistic risk assessments, it can help in enhancing due diligence for high-risk clients and help them make more informed decision.
Meanwhile, using and implementing VR will raise concerns about data security and privacy along with the increase in costs. It is important to establish robust security protocols to safeguard user privacy before commercializing VR, which is currently in its conceptual stage. The regulations are still evolving.
One needs to work closely with regulatory bodies to develop clear guidelines and ensure VR implementation adheres to the highest compliance standards.
- How can new technologies and AI evolution help organisations become cyber resilient?
Cyber resilience is all about an organization’s ability to prepare for, respond to, and bounce back from cyber threats. It means constantly adapting and evolving our security measures to stay a step ahead of potential dangers. New technologies like AI and machine learning can play a big role in boosting an organization’s cyber resilience. They help with advanced threat detection and prevention, user behaviour analysis, training, and automating regulatory compliance.
AI has the capability to sift through massive amounts of data to spot unusual patterns and potential security breaches much quicker than traditional methods. By analyzing global threat intelligence feeds, it can help us stay ahead of emerging cyber threats that are relevant to our clients’ specific operations. Additionally, AI can examine email patterns and writing styles to detect phishing attempts with greater accuracy, protecting employees from social engineering attacks.
Streamlining operations also enhances resilience. AI can automate repetitive tasks and interpret the dynamic compliance requirements, ensuring one stays in line with the regulatory framework. With AI’s ability to efficiently process data within Indian borders, our compliance solutions can meet data localization mandates effectively. At the same time, it’s crucial to implement AI solutions responsibly to build a secure and reliable system.
- Since India has a lot of small and medium financial institutions, where implementing technology is a challenge due to lot of factors, how do you suggest in bringing them to par with bigger names and brands?
Bringing small and medium financial institutions (SMFIs) in India up to par with larger entities requires a multifaceted approach focused on affordability, accessibility, and scalability. One key strategy is leveraging cloud-based solutions, which reduce the need for substantial upfront investments in IT infrastructure. Cloud services offer scalable and flexible options for implementing advanced technologies like AI, machine learning, and cybersecurity measures without the high costs associated with on-premises systems.
Additionally, fostering partnerships and collaborations can play a crucial role. SMFIs can benefit from alliances with fintech companies, technology providers, and industry consortia to gain access to cutting-edge technologies and expertise. Government initiatives and regulatory support can also help by offering subsidies, grants, and favourable policies aimed at technology adoption. Training and capacity-building programs are essential to equip the workforce with the necessary skills to manage and utilize these technologies effectively. By focusing on these strategies, SMFIs can enhance their operational efficiency, compliance capabilities, and customer service, levelling the playing field with larger financial institutions.
- How will generative AI and other upcoming technologies evolve to detect frauds and monitor them?
Generative AI has changed the world and it is only expected to get better at its work, including fraud detection and monitoring by enhancing predictive accuracy, real-time analysis, and adaptability. Generative AI models, like GPT-4, can analyze vast datasets to identify complex patterns and anomalies indicative of fraudulent activity. These models can simulate various fraud scenarios, enabling institutions to predict and counteract potential threats more effectively. Additionally, it can automate the generation of synthetic data for training fraud detection systems, improving their robustness and reliability.
Upcoming technologies such as blockchain, machine learning, and advanced analytics will further bolster fraud detection efforts. Blockchain provides a transparent and immutable ledger, making it easier to trace transactions and detect inconsistencies. Machine learning algorithms can continuously learn from new data, refining their ability to identify and respond to emerging fraud tactics. Advanced analytics will offer deeper insights through real-time monitoring and predictive modelling, allowing for quicker and more accurate detection of suspicious activities. Together, these technologies will create a more resilient and proactive fraud detection framework, enhancing security and trust in financial systems.
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