How Nasdaq Firms Leverage AI and Data Scientists to Navigate Regulatory Challenges
Nasdaq, Inc. announced the findings of its ninth Annual Global Compliance Survey, highlighting the most recent developments and obstacles in the financial services sector’s compliance and surveillance efforts. The global survey collected insights from 94 compliance professionals in the financial market infrastructure, buy-side, and sell-side sectors. Firms adhere to regulations and utilize technological advancements to obtain a strategic advantage in response to increased regulatory oversight. 35% of the respondents anticipate that technologies such as AI will be the primary driver of compliance process change in the upcoming year, a significant increase from 9% last year and 0% the previous year. This transition signifies a transition from straightforward productivity tools to more data-driven investigative methodologies.
We anticipate that firms will allocate resources over the next 12 to 24 months to enhance data quality, integrate data sources and the cloud, and develop cross-product surveillance and related tools. One significant obstacle that this could assist in overcoming is the issue of false positives. Sophisticated data processing and AI can enhance the quality of alerts raised by automated systems. Even though nearly 90% of compliance teams have made a significant effort to reduce the number, they concede that it remains extremely or somewhat challenging. These false positives can be extremely disruptive, resulting in unnecessary investigations, wasted resources, and potential delays in identifying genuine threats.
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Regulatory Compliance
With a focus on the next 12 to 24 months, firms are shifting their talent investment towards data scientists (12%) and additional support staff (13%). This change shows that businesses are becoming more aware of how important advanced technology and complex data analysis are for strengthening compliance systems and controls today. Also, the rising demand for intermediate resources shows the need to analyze ever-growing amounts of data. However, companies rapidly implement AI and other algorithmic processes without a well-defined data, analytics, and analysis strategy. This fits with larger trends in the finance industry, including more money spent on the data infrastructure and giving front office teams and risk functions more advanced technology skills. This includes utilizing sophisticated tools and systems for real-time monitoring and predictive analytics.
Respondents strongly concur (44.7%) or agree (31.3%) that surveillance and compliance teams significantly influence business decisions. Corporate governance, ethical business practices, and risk management are critical for preserving and enhancing brand reputation and trust. Regulatory-focused spending is, therefore, on the rise, albeit at a slower tempo as companies adjust to the changing landscape. Over 40% of firms reported increased compliance spending this year, aligning with the consistent budget increases observed in the previous nine surveys. Still, there has been a big change in how companies spend their money on technology. This shows that they are moving away from basic workflow and transaction monitoring and investing in more advanced analytics.
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Industry Comments
“The financial services industry is operating in an incredibly complex and dynamic environment, having to respond to ever more sophisticated regulatory requirements, financial crime, and operational challenges,” said Ed Probst, Senior Vice President, Regulatory Technology at Nasdaq. “Technologies like AI and cloud have the power to enhance strategic insights and dramatically improve efficiency but require a workforce able to understand, develop, and deploy the capability. We’re seeing firms increasingly turn to regulatory technology platforms and supplement their workforce with data scientists and other specialists, to handle the changes and challenges of regulatory compliance.”
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FAQs
1. How are Nasdaq firms using AI to address regulatory challenges?
Nasdaq firms use AI to improve compliance processes by enhancing data quality, integrating systems, and reducing false positives in alerts. AI-driven tools help identify genuine risks faster and streamline compliance monitoring.
2. Why are firms hiring data scientists for compliance?
Data scientists bring expertise in advanced data analysis, enabling firms to manage large data sets, develop predictive analytics, and implement real-time monitoring tools that improve compliance systems.
3. What is the biggest challenge compliance teams face?
Despite advanced tools, false positives in automated alerts remain a significant challenge, requiring more resources to ensure efficient and accurate threat detection.
Conclusion
Nasdaq firms are embracing AI and data-driven strategies to tackle evolving regulatory demands. With increased investments in advanced technologies and talent like data scientists, they aim to streamline compliance processes and enhance risk management. Although false positives persist as a challenge, innovations in AI and analytics are transforming compliance from a cost center to a strategic advantage. These efforts reflect a commitment to ethical practices, regulatory adherence, and sustaining trust, which are crucial for long-term success in the financial sector.
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