The Future of Know Your Investor with AI and Automation

Learn how AI and automation revolutionize know your investor solutions, enhancing security in investment firms and ensuring regulatory compliance.

Despite the alarming bells of a recession, investments in digital startups continue to skyrocket. Since more and more people are looking to invest in artificial intelligence-based startups, it opens up an avenue for cybercriminals and hackers to exploit the system. Such high-value industries are often targeted by money launderers as well. In 2021, the US alone lost a staggering $5.8 billion to fraud cases, as per the Federal Trade Commission. This loss reflected an increase of 70% from the previous year. Since financial organizations are at an increased risk of illicit activities, they should implement a know your investorverification solution to streamline identity verifications. This article discusses how AI and automation transform investor accreditation verification to protect the industry from fraud and money laundering. 

Improving Security in Investment Firms

Investment firms have long been safe havens for money launderers and scammers. The primary reasons behind this were the absence of security measures and the involvement of high-value transactions. Each year the rate of fraud and investment scams continues to rise – for instance, 2022 witnessed an increase of 42% in these scams compared to the previous year. Besides scams, terrorism financing and money laundering are among the top causes of loss in the investment sector. To curb such activities, Regtech and Fintech industries are working tirelessly to implement a robust know your investor service to accurately verify potential investor. Despite all efforts in the past, financial crimes are still on the rise. Fortunately, the modern AI-powered know your investor solution is the most viable option for investors and firms. Sophisticated investors stay away from investment firms that have a bad reputation. Therefore, it is crucial for organizations to invest in an AI accredited investor verificationservice. 

Managing Risk and Regulatory Compliance

As discussed above, criminals can manipulate unsuspecting investors to make false investments. For instance, four scammers were sentenced to fifteen years in prison due to a £13.7 million investment scam. Similarly, China initiated a mass crackdown on counterfeit investing applications. This operation resulted in a ban on 42,000 apps. These alarming cases and statistics forced global watchdogs to take decisive action. Therefore, Financial Action Task Force and US Securities and Exchange (SEC) enforce stringent regulations. 

However, it can be challenging for financial companies, especially investment firms, to comply with all regulations. One primary reason behind this is that FATF generally has different rules based on regional activities. For an international firm, it becomes challenging to stay updated with these guidelines. Not only does this require a significant workforce, but also a time and monetary cost. On the other hand, a know your investor service that utilizes AI tools can help stay up-to-date with the evolving regulatory landscape. 

Investing in Complementary Technologies 

It’s important to note that a know your investor service is essential for qualified investor verification, yet it requires complementary technologies to get the best outcome. Therefore, an investment firm or any other organization that operates in this space should implement cloud technologies with a know your investor solution. These technologies contribute to AI by improving data collection and data extraction methods. For insurance, if OCR (optical character recognition) is used to capture client and investor data during customer onboarding, it will significantly reduce the time needed for data processing. Moreover, it will also decrease the collected data's error rate. In short, cloud computing provides the computational power necessary to identify underlying patterns of investor transactions. At the same time, OCR improves the process by streamlining data extraction and collection method. Moreover, it makes it easy for a company’s staff to adapt to the new know your investor system where the learning friction is low. 

Develop Sustainable Strategies for Finance Industry

For a sustainable AI transformation in a know your investor service, it’s not enough to simply implement the technology. Instead, financial organizations and businesses should partner with know your investor solution providers to develop a long-term strategy to verify investor background securely. Currently, most organizations are jumping into the AI race just for the sake of it. They need to understand that it can be counter-productive without proper planning. According to a McKinsey report, most transformation plans fail solely due to a lack of strategy. It can be inferred from this report that a know your investor solution can only be beneficial if the company realigns its goals according to the AI transformation. Modern know your investor solutions can get you a verified investor in seconds with more than 98% accuracy. Therefore, organizations must transform the system, not just a tool.