“The future is here, it’s just unevenly distributed” Sci-fi writer William Gibson, author of Neuromancer
This is the fifth and last part of the series 5 truths about global compliance. Download the paper to read the full version.
Compliance is on the cusp of a new era. Revolutionary technologies such as Artificial Intelligence (AI) and Machine Learning have already entered the industry. Soon both will be mainstream. Digitisation and harmonisation are on the agenda. Although impossible to fully predict, we thought we would share how we believe the compliance industry will evolve over the next few years.
Knock knock. Who is there? It’s me, Artificial Intelligence!
Intelligent software with the power to learn is now commonplace across legal and financial services. Compliance is only starting to harness the power of AI. Regulatory authorities will use AI to sift through big data patterns to find anomalies and errors in filings and financial reports as well as a form of personal assistance to accelerate job completion times. AI will change how we see disclosure. Keyword engines search millions of documents, technology analyses conversations to identify the relevant red flags, and so on and so forth. Deployment of similar tools will only increase.
Robotic Process Automation
The poor cousin of AI, RPA uses software to augment or replace an existing activity done by a human, akin to virtual workforce. RPA is ideal for tasks which are repetitive, rules based, and that involve digital data. The telecoms industry uses RPA to process customer invoices. Healthcare companies process patient registration by RPA in the back office. Compliance has been slow to adopt RPA because the work is smaller scale, and each jurisdiction operates its own system. But RPA is developing rapidly, and will soon be used for mundane jobs, such as updating director information in multiple jurisdictions.
Compliance will go fully digital
In the age of the Industry 4.0 it is peculiar to see so many compliance activities still rely on paper processes, however many regulators are already embracing change and moving into the digital era.
Partial adoption of harmonisation
International efforts to align jurisdictions are making life easier for compliance officers. In the future, we will see efforts to harmonise forms, legal requirements, and data sharing protocols. But whether this will result in uniformity is disputed. Priscila Westerhof-Fittipaldi, Portfolio Director of Corporate Secretarial Services at TMF Group says there is good reason to suspect differences will endure, despite this trend: “There will always be differences in what you need to report or how you need to do it. Better positioned countries will not want to give up their lead about taxation and data protection. And differences are justifiable. In one country, you need a $30m revenue before needing to report, in other it is $1m. That is because those countries look after and defend their own economy first, and tax and regulation needs are part of it. That will not change.”
Clean up time is due!
Black economy will feel the heat. “Less law-abiding people will try to go into hiding,” predicts Andre Nagelmaker, Chief Regulatory Services Officer. “They will search for opacity and arbitrage.” This could lead to international pressure on jurisdictions which fail to apply widely-adopted rules. This pressure may lead to a further convergence of enforcement authorities, though continued tax and regulatory competition between countries may also cause loopholes that will need to be monitored.
Tax authorities continue being hungry for more revenue
Tax authorities may soon realise that compliance offers easy pickings, becoming best of friends. “Opportunism is not foreign to governments,” warns Nagelmaker. “Tax revenues in many developing nations remain small as a percentage of GDP. They may increase enforcement as a way of adding to their treasury.”
The press transforms into the new ethical regulator
Authorities are learning to implement and enforce new rules around transparency (the likes of CRS, FATCA, KYC, UBO, and other initiatives) and are also devoting more resources to combating tax avoidance and other issues. The press and its influence becomes a social and moral regulator, transforming the depth of research performed by the authorities even with AI and RPA. “There will be a more accepted game of naming and shaming,” says Leila Szwarc, Global Head of Compliance and Strategic Regulatory Services and in many cases authorities will pick their audit paths and next victims based on media trends and their undercover investigations.