Reinventing Risk Management: The Generative AI Frontier

IN THE NOT-SO-DISTANT past, the work required to assess and monitor risk had to be done manually — with a paper and pencil, or in a spreadsheet. Risk professionals read regulations and adjusted practices by hand. This often tedious, but important work, required a high volume of human labor. According to Vikas Agarwal, financial services risk and regulatory leader at PwC, some organizations still spend millions of dollars per year on teams of paralegals to go over regulations and make policy changes.

The stakes are high: Businesses need to comply with strict rules, stay compliant with new regulations, and effectively and efficiently manage credit, market, operational, and liquidity risk. Imagine a brick-and-mortar bank planning to open up a digital one, a B2B company that wants to sell directly to consumers, a food company trying to keep up with FDA regulations or a tech company that wants to get into the healthcare space and sell drugs online. For pharmaceutical companies, compliance with safety regulations is one of the biggest bottlenecks in new drug development. All of these transitions and growth opportunities create hurdles—huge amounts of new rules—that need to be navigated and complied with.

“To do that, you need to rapidly understand the regulations and risk, put in the right controls to build that infrastructure, and get regulatory approval to go live,” said Agarwal. As new technology emerges, like generative AI, it’s opened up a new way of doing this work in the risk management space. The power of this new tech is three-fold: It speeds up growth, makes businesses more efficient, and improves the quality of risk and regulatory practices.

When the team at PwC assesses issues like this with clients, Agarwal starts asking questions. If something is manual, why is it manual? How can we replicate the thought process that goes on in a person’s mind and automate it? Sometimes this involves simple automation, or more complex machine learning and generative AI. AI tools can now take the time-consuming tasks, like getting through governmental bureaucracy, and digest and analyze the relevant regulations and translate them into actionable obligations.

One of the biggest challenges businesses face is the sheer volume of information being generated that must be distilled, organized, and synthesized. According to a study, 79% of risk professionals reported that a significant risk management challenge is keeping up with the speed of digital transformations. In the future, traditional methods of managing and mitigating risk will lag behind. Agarwal uses AI to, bring multiple information streams together, and uses algorithms to triangulate events and determine actions. The tech behind generative AI is getting more sophisticated by the day, and may likely be the only way to keep up in a world where the risks are becoming increasingly diverse and unpredictable. Still, less than 40% of executives are consulting with risk professionals early in their business development process.

In many businesses there are a lot of manual processes, like IT support or call centers, that require repetitive tasks. Automating them can make the business more efficient, and frees up employees for higher value work. The entire risk domain, said Agarwal, is about quality and identifying risk. While people do risk and regulatory work well, they also make mistakes. “Machines make mistakes too, but they make a lot fewer of them,” he said.

Today, companies spend about 6-10% of revenue on risk and compliance. Agarwal thinks that Risk Link, a new platform as a service from PwC, can help cut that in half, while improving the rate of compliance and reducing fines for non-compliance. Companies that are trying to start a new avenue of business or roll out a new drug, for example, need to have curated data for regulations, risks, and processing controls in order to do that quickly and safely. To create Risk Link, PwC collaborated with CUBE, a company that consolidates legal, risk, and compliance information.

“The driving force behind CUBE stems from a major issue that the market has faced since 2008: the overwhelming pace of regulatory changes surpasses the ability of traditional solutions,” said Ben Richmond, CEO and Founder of CUBE. “We’ve harnessed the power of AI and a data-driven strategy to enable firms to transform the way they meet regulatory obligations.”

The platform has more than 100,000 regulations, processes, risks and controls in sectors from finance to cyber to ESG, all accessible through generative AI. Risk Link offers a personalized dashboard that shows employees risk and compliance information all in one place. This can help businesses keep up with regulatory challenges and changes in real time, and automatically maps new regulations to existing protocols. Risk Link provides a 360-degree view of risk by uncovering insights, producing detailed reports, and creating visual reports. By using AI to connect the dots and direct human attention to the right places, these tools can help businesses run more efficiently and help leaders make more confident and informed decisions.