Fintechs ahead in risk and compliance AI adoption: Moody's

Fintechs have come in as the top adopters of artificial intelligence (AI) usage in risk and compliance while insurance, asset and wealth management have been slower on the AI uptake. 

The latest Moody’s report found 18 percent of fintech respondents lead the charge in AI technology adoption for compliance and risk. 

Sitting close behind the fintechs is the banking sector with 12 percent of respondents recorded in the latest Moody’s report, are actively employing AI. 

Meanwhile, only 3 percent of respondents in insurance, asset management, and wealth management noted active use of AI technology. 

The study also found 11 percent of those partaking in the report are already piloting the emerging technology. 

Chua Choon Hong, head of financial crime practice group for the APAC and Middle East at Moody’s Analytics told Digital Nation fintechs are inclined to be early adopters of new cutting-edge technology in the market, “a stance that underpins their fundamental existence”. 

“Given their strong tech capabilities, smaller scale and leaner operations than traditional financial institutions, fintech companies are also generally more agile in adapting to market needs; hence, it is not surprising to find fintechs leading the charge in AI adoption," he said. 

Choon Hong said wealth management businesses are required to exercise strong data privacy measures, which can lead to “more caution before adopting new technology”.

“For insurers, our AI in compliance survey indicates that their chief concerns include security risks, data privacy, and potential misuse of generative AI," he said. 

“As a traditional industry, the insurance sector may wait and see until use cases have been tried and tested elsewhere."

APAC highlights

The report found the Asia Pacific (APAC) region recorded the highest proportion of respondents, with 30 percent expected to adopt AI faster in risk and compliance compared to other departments, as opposed to 18 percent in Europe and 16 percent in the Americas.

Ninety percent of APAC respondents noted it is fair or very important to have new regulations tracked as it is the region most concerned with the displacement of jobs at 30 percent, compared to 13 percent in Europe and 14 percent in the Americas. 

It was also the area most keen for vendors to integrate AI tools at 90 percent versus 77 percent in Europe and 68 percent in the Americas.

Other key takeaways from the report found two-thirds of respondents described their data as fragmented or containing inconsistencies, meaning a lack of quality of internal data could be a barrier to AI implementation.  

Beyond early adopters, most firms are still to embrace large-language models (LLMs) however, there is an understanding these will deliver advantages for risk and compliance. 

The report noted a “stark gap” between “the lack of awareness of AI-related regulation and the common agreement that new legislation is needed; therefore, those in the industry need to engage in dialogue with regulators.” 

Staying ahead of the curve 

Choon Hong said as businesses seek to stay ahead of the competition as AI develops and matures, AI adoption in all industries will likely grow. 

“The efficiency and effectiveness of AI, whether used in providing better insights or improving productivity, once proven, will drive better financial and operating performance for businesses while they work within regulatory obligations,” he said.  

“Our survey reveals respondents’ expectations of AI adoption vary based on their industry. While very few (5 percent) of all respondents predict widespread adoption of AI in risk and compliance within the next 12 months, this number is much higher in fintech – 15 percent.”

Choon Hong said insurance sector respondents did not expect widespread adoption in the next 12 months, however, 83 percent expect widespread adoption within one to five years. 

He added AI is expected to be integrated within risk and compliance at “a slower pace” than other business functions due to a variety of reasons. 

One factor is it will be expected that "firms will prioritise revenue-generating areas of the business, while the conservatism of regulators is expected to play a part". 

“Cultural and mindset barriers could delay adoption, along with technical and practical concerns, as well as the view that risk and compliance are uniquely nuanced fields that rely on human judgement," he said. 

“Despite these reservations, almost 70 percent of firms expect AI to exert a transformative or major impact on risk and compliance."

Will diminishing hype impact adoption? 

Choon Hong believes despite initial AI-driven hype quieting, businesses will continue on the path of generative AI adoption “given its large potential to transform and improve their operations". 

“As generative AI becomes more mainstream, we can expect businesses to use it to gather data within their organisations, providing users with greater clarity and reliability as outputs will be based on trusted data sources at a larger scale than previously seen," he said. 

“This will increase productivity and the speed of decision-making, driving organisations to be more effective."

He said the technology will also evolve as companies look to monetise generative AI via improvements to existing products and services in efforts to help boost revenue.

The report engaged 550 leaders across the globe, totalling 67 countries, including 92 from the APAC region.