The one constant in every compliance professional’s life today is pages—thousands upon thousands of pages of rules, regulations, and policies that dictate the boundaries of their financial institutions’ behavior.

Whether it’s the Dodd-Frank Act, which spans over 22,000 pages and counting, or MiFID II, which nears 15,000 pages, many compliance officers are drowning under a sea of paper that seems to swell by the day. Faced with this constant onslaught, today’s average compliance professional spends most of his or her day performing time-consuming tasks, such as reading through regulations, determining potential obligations, drafting compliance policies, defining controls, and generating reports.

In addition to the high costs and inefficiency of these manual processes, they are prone to human error and can result in banks missing critical requirements. Most compliance functions struggle to keep up with constantly changing regulations. According to the Thomson Reuters 2016 Global Cost of Compliance Survey, more than one-third of financial firms surveyed spend at least an entire day each week keeping track of steadily rising regulatory change, and almost all of them expect compliance demands to continue to increase. Given the uncertainty in the current regulatory environment, compliance functions must increase efficiency and lower costs to stay compliant.

Financial institutions are already aggressively hiring seasoned compliance professionals—at the end of 2014, Citigroup reported a compliance staff of 30,000—but headcount alone can’t solve today’s compliance challenges. Today’s compliance professionals are having to spend the majority of their time gathering information instead of actually analyzing it.

It’s time someone threw these compliance professionals a lifeline.

To improve the way compliance teams operate in the current regulatory landscape requires an investment in technology—the kind of technology that transforms the focus of compliance staff from that of information gatherers to information analyzers. That’s where cognitive systems come in.

To improve the way compliance teams operate in the current regulatory landscape requires an investment in technology—the kind of technology that transforms the focus of compliance staff from that of information gatherers to information analyzers. That’s where cognitive systems come in.

Cognitive systems like IBM’s Watson mimic how humans reason and process information. Rather than being explicitly programmed, they learn from interactions with humans and from continuous ingestion of additional data. In this way, humans and machines work together to produce a smarter and more efficient system.

Watson uses natural language processing to analyze structured and unstructured data, such as a new rule or regulation, in an attempt to identify relevant meaning and insights. Cognitive computing is a natural fit for staying on top of regulatory changes, because it can be used to streamline the significant amount of effort required to read and interpret the countless number of pages of regulations, along with other related content published nearly every day. Instead of having compliance professionals constantly reading through regulatory documents to determine which of the millions of lines of text apply to their institution—traditionally one of the most arduous tasks for a compliance department—cognitive technology can streamline and automate each step of the process.

For example, if the CFTC were to publish a new rule aimed at curbing a certain type of derivative trading, the Watson system can:

Automatically pull the text from the CFTC Website

Analyze the text to identify which parts of the rule are relevant to the organization

Categorize each obligation to a firm’s existing risk framework

Identify the relevant controls required to address the obligation

Provide alerts of any changes to the regulation that may impact the firm

At each step, a legal or compliance professional can review the system’s recommendations and determine what actions need to be taken, asking questions along the way. With Watson, regulatory compliance teams can do in a matter of hours or days what would take several compliance professionals weeks or even months to achieve.

This type of automatic processing also reduces the risk of different compliance professionals reaching different conclusions about the same set of regulations, which can introduce further risk into the organization.

With a cognitive system in place to handle the most tedious parts of regulatory compliance, professionals can focus on more meaningful work, such as helping the firm address its actual compliance obligations. Not only would financial institutions benefit from a more efficient and effective compliance management, but the compliance employees themselves would be more likely to enjoy their work.

A machine can only be as powerful and intelligent as the data it receives, however, and this is true even of a transformative technology. That’s why it’s important to also consider the role that human workers play in optimizing the compliance function.

In the example cited above, a compliance team is “training” Watson how to behave, simply by interacting with the system. With each acceptance or rejection of a Watson-identified requirement, Watson learns and adapts its understanding of what constitutes a regulatory requirement, thus establishing a “ground truth” for financial services organizations. This way, in the future, Watson will be able to apply the knowledge gained from past user responses to new and modified regulations as they surface. It will use linguistic patterns and statistical algorithms to generate more accurate results. As more and more regulations are ingested and more human feedback is provided, machine knowledge and cognitive capabilities to understand and interpret regulations improves significantly.

The benefits of this approach extend to other actions required to finetune a firm’s inventory of regulatory obligations, such as promoting previously ignored statements to requirements, merging or splitting sentences to form requirements, and tagging ancillary and supporting content as guidance for one or more requirements. The final output is a centralized repository of regulatory requirements that will allow an institution to quickly and efficiently understand its obligations and manage its efforts to ensure global compliance with regulatory mandates and firm best practices.

This marriage of man and machine shows the true potential of cognitive technology. By itself, technology can automate many of the more laborious responsibilities of a compliance professional. But by having compliance professionals leverage and interact with a cognitive system like Watson, technology can help transform the compliance function from a center of research to a center of analysis that can add value across the organization.

It’s clear that the status quo is unsustainable. Hiring more staff is at best a short-term fix—financial institutions need a long-term solution that will help prepare them for the regulatory demands of tomorrow, not just today. The cognitive era is just the beginning in a technological revolution that will enable organizations to both reduce compliance costs and achieve greater productivity.


Marc Andres is Vice President of Watson Financial Services.