Compliance Leaders Need to Embrace AI
I spent the day at Snowflake’s Data Cloud World Tour event in Toronto, and what an amazing event! There were so many thought-provoking sessions and side-conversations with data leaders that I’m still trying to get my head around. It’s no surprise that the most captivating discussions were related to generative A.I. and Large Language Models (LLMs). The adoption of GenAI and LLMs by businesses for internal and client-facing use-cases is truly impressive, and a little scary. After all, don’t they know they’re in a regulated industry? Perhaps there is an opportunity here for compliance leaders to partner with businesses to demonstrate their unique value-add.
Along those lines, though, I’m struck by how few of my conversations with compliance leaders focus on the impact of technology and the need to embrace it. Most of our conversations are focused on regs, regs and more regs. I totally get why that is, but I’m worried that the tech landscape is shifting so rapidly that people are either not seeing it or simply not moving fast enough.
It reminds me of what I witnessed in the late 2000s and early 2010s and the shift from manual trading to automated trading while I worked at the consultancy TABB Group. While this move ultimately led to tremendous savings for investors, it also meant downsized trading desks and careers that fizzled out. At that time many leaders were determined to protect the status quo. And why not? It was a practical approach to protect margins for the business and prevent the business model from crumbling. Plus, the alternative was uber-risky. It meant telling your boss that the entire technology infrastructure needed to be overhauled from top to bottom, which would cost tens of millions of dollars – and this investment would accelerate the erosion of trading commissions in the short-term.
A Cautionary Tale from 2012
I vividly remember one meeting with a bulge bracket dealer. It was at the time when the US Treasury market shift from manual trading to electronic was well underway. We met with the Head of the Fixed Income Division at one of our largest clients. Our mission was to share our research on market trends and advise him of the risks they faced from the impact technology on the Business.
Right out of the gate, the executive began railing against electronic trading and telling us that electronic trading in US Treasuries (UST) was “overstated” and that e-trading was for odd lots. He proceeded to stand up saying “electronic trading would never take over, at least not on my watch…” *
The meeting continued and revealed our findings that approximately 1/3 of the UST trading was already handled via e-trading and that the leading automated trading firm was Getco* – a Chicago-based hedge fund. I was stunned by what happened next. The executive asked, “Who is Getco?” My colleagues and I paused and looked at each other wondering if he was joking. He wasn’t.
This was truly shocking. Here was a powerful Wall Street leader whose trading desk owned an impressive 15% market share, and he was not even aware of Getco. And Getco was right behind them with a 12% share of the market. He was a client, so naturally we educated him on the hedge fund’s rise in equity trading, along with Citadel Securities, and subsequent rapid growth of electronic trading in the UST market. In just 5 years, electronic trading had almost tripled, growing from 25% to almost 70% of the market volume, according to Coalition Greenwich.
As you can guess, his career was one that faded away.
Inflection Point for Compliance Leaders?
We are now at a similar inflection point for compliance leaders. The landscape of compliance and compliance technology is changing rapidly. Just like in the transformation of the Front Office in recent years, the transformative power of technology will also bring about substantial changes in the roles and skillsets required for compliance professionals. Furthermore, regulators expect industry firms to deploy RegTech solutions to improve their controls and reduce risk. Clearly, there is much to be done. Here’s where you can start.
3 Key Steps Compliance Leaders Can Take Now
To navigate the current paradigm shift in technology, compliance leaders must broaden their skillsets in technology, business acumen, and communication skills. Effective communication will enable you to position yourself and your team as the valuable assets they are. Adaptation will require sustained effort, and some risk-taking, but here are three steps you can take now to prepare yourself for what’s coming.
Shift Your Perspective: Traditionally, compliance and the business often operated independently, and sometimes with friction or tension. To effect change, compliance leaders should transition from the concept of “lines of defense” to a holistic view of how their function can contribute value to the broader business strategy. Compliance can proactively mitigate risks and influence the business’s perspective, gradually ingraining a compliance culture.
Enhance Your Business Savviness: As discussed, the pace and complexity of the business world are accelerating. This is primarily due to technological advancements like cloud computing, data analytics, and A.I. Building influence with the Business and fostering those relationships is essential for driving adoption. Competence, empathy, and the ability to articulate the value of Compliance to others are central to unlocking your influence.
Embrace Technology: While you don’t need to become an expert in every technical detail, getting comfortable with new technologies and their potential to enhance operational agility is essential. Reducing manual tasks and streamlining processes will free up teams to provide higher-value support to the business, minimizing firefighting, maximizing proactive contributions, and mitigating risk.
To sum it up, if you want to boost your career, it is critical to embrace the changing nature of work – which is ultimately humans plus machines. Humans will still call the shots, but off-loading menial tasks that are time-intensive will enable humans to elevate effectiveness and value to the business.
After all, it’s just the dawn of adoption for A.I. But now is the time to get it right, or risk being left behind.