How AI is reshaping compliance teams and regulatory operations in India
By Dr. Kanishk Agrawal Chief Technology Officer at Judge Group, India
In the last decade, the regulatory landscape in India has changed very quickly due to the factors of digitization, the move towards financial inclusion, the various data localization mandates, and increased scrutiny placed on industries such as banking, fintech, health care, telecom, and technologies. Some of the key players in India’s regulatory environment (e.g., RBI, SEBI, etc.) have begun to create more nuanced frameworks for things such as data protection, cybersecurity, risk management, and consumer protection amongst others.
As a result, there is a greater volume of compliance documentation and ongoing monitoring and reporting against these ever-tightening timelines. Traditional manual methods of compliance were once adequate but now struggle to keep pace with the increased volume, speed, and complexity of ongoing regulatory change.
From Manual Processes to Intelligent Compliance Systems
AI is fundamentally changing the way in which compliance operates in India. Instead of using rule- and checklist-driven processes, organizations are turning to new, AI-powered systems capable of reading, interpreting, and mapping regulatory requirements in real-time. Using natural language processing, computers can also analyze circulars, consultation papers, and amendments that are published by regulators and quickly flag the relevant updates. Ultimately, this will allow compliance teams to shift from reactionary responses to proactive governance by being able to identify risks and address them before they manifest as violations.
Enhancing Detection of Risks and Monitoring of Risks
Another major benefit of using artificial intelligence (AI) is to provide ongoing risk monitoring and detection. Using machine learning (ML), models can evaluate transaction history, communication records and operational data to highlight any unexpected or anomalous activity. For example, if there are unusual transactions; if there is any insider trading; if sensitive data has been misused by an employee or if a company has made a serious operational error (misclassification), the ability to identify these events or activities systemically through the use of AI has increased tremendously.
AI-based systems are particularly effective in domestic Indian sectors where there are many regulatory requirements that must be adhered to, such as banking and payment processing – they have helped compliance officers discover suspect activity with a considerably greater level of accuracy and a lower number of false positives. In addition to increasing the ability of compliance officers to comply with regulations, it has also decreased the number of times that compliance officers receive fatigue from the volume and/or number of investigative matters that they must conduct in order to find evidence that a regulatory violation may have been committed and allows them to concentrate on those cases that are the most significant in risk and require a human decision/analysis.
Simplifying and Automating Reporting and Audit Readiness
In India, regulatory reporting occurs frequently and the amount of data (structured and non-structured) that organisations are required to submit is substantial. AI has begun to streamline the regulatory reporting process by providing automated processes in regard to data collection, validation of information and generation of reports. AI systems have the capability to reconcile data across all departments, maintain consistent information across all departments and identify gaps in information reconciliation by leveraging pre-submission reconciliation capabilities.
Additionally, AI systems can maintain a real-time audit trail so as to always be ready for an audit cycle, thereby providing strategic value to companies, particularly to rapidly growing companies and under regulation by digital commerce platforms.
The changing role of Compliance Professionals
AI will take over many routine, time-consuming functions, and this shift is causing the role of compliance professionals in India to change. In the past, compliance professionals served primarily as manual enforcers of rules and regulations. Increasingly, compliance teams are acting as strategic advisors to business leaders. Compliance is playing a more significant advisory role, with a core focus on interpreting regulatory intent, advising on ethical use of AI, managing regulatory relationships, and integrating compliance into business strategy and product design. AI will not replace compliance professionals but will elevate the profession by creating more bandwidth to support strategic and governance decision-making.
Data, ethics, and explainability in AI
While there are many benefits to AI-powered compliance, there are still significant concerns regarding data privacy, algorithmic bias, and the ability of AI algorithms to explain their decisions. Regulators in India are increasingly mandating that companies provide transparency and accountability in all automated decision-making.
Therefore, compliance teams must ensure compliance with regulations based on common auditing principles, such as that the algorithms are explainable and auditable, as well as in compliance with the law. Increasingly, compliance teams will develop and implement governance frameworks around model validation, assessing any potential for bias in their design, and implementing a human-in-the-loop control process to ensure that automation enhances trust rather than diminishes it.
What does the future of compliance in India look like with the adoption of AI?
As India pursues its digital-first economy, AI will be the driving force of regulatory operations and compliance management. Organisations that invest in intelligent compliance infrastructures early are likely to be better prepared to manage regulatory changes, mitigate risks, and build trust and credibility with both regulators and their customers. In this rapidly changing environment, AI is not simply a tool to create efficiencies within back-office functions but is establishing itself as the foundation of resilient, future-focused compliance functions.