In the future, blockchain, artificial intelligence, network analytics and other new technologies may become as commonplace as the next-day or same-day delivery of consumer items, which was only an idea a few years ago. But for now, these technologies hold more promise than they deliver.
Still, that’s no reason to downplay their potential and the need for financial services firms, their employees and their government regulators to educate themselves about these technologies and the challenges they pose.
Those are some of the key takeaways from the Financial Industry Regulatory Authority’s RegTech conference held in New York City recently.
“Blockchain today remains a nascent, immature technology that no one has deployed at scale yet,” said David Shrier, lecturer at the MIT Media Lab and CEO of Distilled Analytics, a company that uses AI to verify that people are who they say they are. It has the “ability to create immutable records” that can be used for audit trails and much more, according to Shrier.
“AI has the ability to find patterns that we cannot easily find as humans,” said Jo Ann Barefoot, CEO of the Barefoot Innovation Group, who hosts a podcast and blog and consults on regtech issues. It can help detect potential cyberattacks before they occur or a potential threat from a previous bad actor setting up new operations.
Financial firms can use these new technologies to strengthen compliance procedures, including know your customer (KYC) processes, and help detect problems before they occur. They even have the potential to help ease regulatory requirements, such as capital reserve rules, if legislators and regulators believe they will enhance their ability to detect shortfalls and fraud.
Regulators can also benefit. An analyst at Vermont’s Department of Financial Regulation currently takes two to three weeks to review auto insurance filings, said Michael Pieciak, commissioner of the Vermont Department of Financial Regulation and president of the North American Securities Administrators Association (NASAA). Using these new technologies, that time can be cut substantially, freeing up the analyst for other matters.
Pieciak recently partnered with Vermont’s secretary of state on a pilot program exploring the use of blockchain technology for maintaining records in the captive insurance field, which is a form of self-insurance by large corporations.
“Getting educated about these new tools is a priority,” said Barefoot. “Figure out how to get the data, your biggest pain points and the solutions available.”