Business Transformation | 06.24.26
AI and Compliance Have a Thing Going On
by: Rich Blake
As ever-more sophisticated AI models proliferate, ushering in an era of accelerating productivity hikes, white-collar professions across the board could very soon be in for some dramatic changes. Go ahead and count financial advisory services as one of those areas poised to be altered by the “AI as a superpower” trend.
Within the financial sector, compliance functions in all their many splendored forms — document signing protocols, process tracking portals, verification checklists as well as a gauntlet of disclosures, all amounting to a mountain of red tape — jump out as particularly ripe for streamlining. Regulators seem to agree.
In February, Brian Daly, director of the Division of Investment Management at the SEC, while speaking before the Investment Company Institute Board. posed the question: “What if we reimagined disclosure using [AI]?”
Daly noted that the investment industry is still deploying outdated technology — PDFs and emails — to transmit disclosure documentation in laborious fine print. What if, he mused, powerful new tools were used instead?
“Imagine the retail investor interacting, not with a 200-page document, but with a fund- or adviser-provided AI agent,” he said.
Daly, a former partner at Akin Gump Strauss Hauer & Feld and a board member at the Managed Funds Association, was brought into the SEC as part of the Trump administration's push to ease regulation and embrace new technologies.
The example used by the SEC’s Daly, disclosure documentations, is a glaring one in terms of the glut of dense legal documentation and recordkeeping tasks that advisors are saddled with today. Planners and advisors provide retail investors with prospectuses, periodic reports and financial statements — multi-volume libraries of material ultimately — while at the same time keeping detailed records of client interactions and financial details.
The work requires a small army of compliance professionals, small and mid-sized advisors, augmented by outside resources, while larger banks maintain teams of in-house and external lawyers, and these forces usually are housed in different locations.
While rapid improvements in technology over the past decade have helped make compliance more manageable, the expense in the industry is immense.
In late 2024, the Bank Policy Institute released a report estimating that in 2016, banks spent 9.6% of their IT budget on compliance duties while by 2023, that spending had grown to represent 13.4% with the total amount expected to expand further in the years-ahead.
Arms Race
As financial service executives consider how best to harness AI, their opponents in the never-ending war to protect client data have already gone all in.
While the Mythos model from Anthropic and its ability to penetrate robust infosec environments has garnered headlines, less powerful tools already make IT security more difficult by supercharging things like phishing and pig butchering, and other human-focused attacks.
Experian estimates that 40% of data breaches it investigated in 2025 were AI generated.
In a whitepaper released last year, the SEC called on compliance teams at firms to develop dedicated AI-specific fraud detection and authentication measures.
According to David Bliss, chief product officer at Comply, the pace of new AI powered threats is increasing exponentially.
“If a fraudster can convince someone to hand over passwords or even wire them retirement funds directly, that risk is compounded by the volume and customization of fraudulent activity that AI enables,” according to Bliss, adding “investment advisors and financial services firms of all types need to put far more effort into vendor due diligence, ensuring their partners are also protecting themselves from these lines of attack."
New York based Comply provides compliance software and support to more than 5,000 clients spanning banks, insurers and wealth managers.
Like the adoption cycle for any new technology, organizational control will be essential. Internal compliance development teams must wrestle with integration of new tools across multiple business groups relying on multiple vendors.
"Firms will likely start to interact with multiple systems, software tools and workflows via agents and agent orchestrators,” said Comply’s Bliss. While she notes that this will enable efficiency and potentially direct vendor spend savings, it also drives the need for robust AI governance in a way that “mitigates the risk of using black box AI solutions where the underlying decision-making is not well-understood."
Thomas Stewart, CEO of Hadrius, believes that these complex demands will ultimately lead many in the bank and wire house advisor community to move away from managing fragmented access to tools in-house towards fully integrated platforms like the one his firm has constructed, where data lands in one place that AI can reason across multiple oversight streams simultaneously.
According to Stewart, most compliance pain has traditionally come from manual processes and data trapped in silos.
“For independent RIAs, that means getting off spreadsheets and disconnected vendors onto a single system,” he says, adding “for bank-owned groups, it's integrating with existing enterprise infrastructure and security — either way, the direction is consolidation and tooling built for AI from the ground up.
Hadrius launched in 2023 with initial backing from startup accelerator Y Combinator as well as a host of high-profile venture capital funds.
Man vs. Machine
Media headlines discussing the impact of AI on the U.S. economy have focused on a primal fear of human expertise being made obsolete by new advanced models. Industry analysts have cautioned that it is too early to tell what the full impact of new powerful Large Language Models (LLMs) will be on compliance and legal administration departments in the banking and financial advisory community.
Hadrius’s Stewart sees the early AI adoption happening across high-volume, repetitive compliance work including communications review, recordkeeping, surveillance and exam prep. AI is perfect for these types of work, performing the first pass across huge volumes and routing exceptions to human staff members.
“It’s a big deal for small and mid-sized firms because it lets one person own a function that used to need a bigger team or outsourcing,” Stewart said.
The final impact on headcount for compliance teams in financial services remains unknown. However, the frantic pace of investment by banks and advisors most likely means that the change will occur rapidly.
According to a survey conducted by PwC in April, 73% of 154 senior financial services executives interviewed said that they would rebalance their workforce model between human roles and AI in the coming year.
In a report issued in conjunction with the manager survey, PwC stressed that “when it comes to risk, regulatory accountability, fiduciary responsibility and high-value decisions, people are irreplaceable;” yet, it also added that even though compliance specialists will remain essential, “their numbers may decline.”
Ultimately, the role of human compliance specialists may boil down to the need for organizational judgment and accountability. That could in turn, mean far fewer compliance roles for humans. But jobs that come with greater responsibility — and compensation.
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