Canadian firm's report highlights concern about increasing fines
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 Vancouver based 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 year Canadian firms, CIBC World Markets Corp and CIBC Private Wealth Advisors agreed to a US$12 million penalty and Canaccord Genuity agreed to pay $1.25 million to settle SEC charges for “widespread and longstanding failures by the firms and their personnel to maintain and preserve electronic communications in violation of recordkeeping provisions of the federal securities laws.”
CIBC also agreed a $30 million settlement with the CFTC.
Outdated systems
Global Relay says that fines like these – the SEC levied $8 billion in 2024 - have led to reduced reluctance among financial services firms to use AI for communication surveillance to the replace outdated lexicon-based monitoring tools that are attracting interest from regulators, although data security, budget, explainability and transparency, and push back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.”
