The term compliance automation broadly refers to the utilization of technology to assist contemporary compliance practitioners in more efficiently carrying out an exponentially increasing set of core responsibilities.
While compliance automation is prevalent throughout contemporary compliance practice, it is most evident in the realm of third party risk management (“TPRM”), where automation allows the compliance team to continuously screen and monitor its various vendor and supplier relationships against the latest updates to international sanctions and watch lists.
Compliance automation enhances collaboration between stakeholders involved in the vetting and administration of key third party relationships. By allowing organizations to configure and customize workflows related to supplier onboarding and due diligence, communication between the compliance function and other core organizational components—including, but not limited to, a company’s supply chain/procurement function, and its financial and accounting teams—is streamlined, fostering collaboration and cultivating transparency.
Moreover, compliance automation plays an increasingly important role in the conduct of internal investigations and incident management by aggregating formerly siloed resources into a single platform. In this context, automation undergirds and enhances existing processes, empowering the compliance team to devote less time to performing menial tasks and more time to focusing on substantive issues.
Why has Compliance Automation become so important?
Simply put, compliance automation saves time and resources. With contemporary compliance teams facing a multitude of new responsibilities, reliance on manual processes inevitably leads to burnout and preventable (potentially costly) oversights.
Particularly in relation to TPRM, manual processes have proven to be too labor-intensive and unreliable to be considered a serious effort at meeting the core compliance competency of managing external risk. Amid a marked increase in global conflict since Russia’s invasion of Ukraine in 2022, regulators and enforcement agencies the world over have prioritized the enforcement of sanctions regulations against organizations operating in higher-risk jurisdictions.
As sanctions lists change on a daily or weekly basis, companies with operations in such jurisdictions would be ill-served by relying on manual screening processes—the utilization of which has led to several notable enforcement actions against organizations lacking the ability to screen third party partners against the latest additions in real time.
How does Compliance Automation work?
When configured properly, compliance automation can result in a significant number of operational efficiencies that go well beyond the current limits of human capability.
For instance, by harnessing the power of artificial intelligence (“AI”) and machine learning (“ML”), a number of core compliance functions—including the automated detection of anomalies in data-dense environments common to such industries like the financial services sector —can yield significant results. These results are continuously monitored and reviewed by knowledgeable compliance personnel for accuracy and utilized to inform additional risk mitigation efforts.
AI and ML processes can also offer insight into deficiencies with existing internal controls. In this respect, automation equips the compliance team with actionable intelligence needed to avert systemic violations of company policy and existing laws and regulations.
Which areas of the compliance program can benefit from automation?
Virtually all areas of the compliance program function can benefit from some degree of automation, although the extent to which core program functions can be automated is largely dependent on the nature of the commercial undertaking in question and the level of technological sophistication it currently possesses.
At a minimum, routine compliance processes common to TPRM, hotline and incident management, and even virtual training administered through a learning management system (“LMS”) can be configured to operate automatically in some respects. For instance, an LMS platform can be used to automatically furnish company personnel with required training at predetermined intervals, track course completion, and even compile data concerning pass and failure rates that can be used to enhance the overall quality of training regimens.
Additionally, for highly regulated environments such as healthcare and banking, certain platforms offer specialized compliance protocols which can be configured to provide real-time updates to compliance personnel regarding important legal and regulatory changes.
The limits of Compliance Automation
While automation can assist compliance professionals in the performance of their responsibilities, it cannot serve as a wholesale substitute for human skill. This means that automation should be seen as a critical compliance program enhancement rather than a replacement for existing protocols. Nearly all automated compliance processes require some element of human interaction; especially processes that portend to analyze large quantities of data. These results must be reviewed by compliance personnel for validation purposes.
Because technology is susceptible to error and bias, merely accepting the output generated by an automated compliance program process is ill-advised.
Compliance Automation: Use-Cases
Compliance automation benefits a multitude of processes across all major economic sectors and industries, including most prominently, the financial services and healthcare sectors.
With respect to financial services, automation can assist in monitoring transactions in real-time, identify suspicious activity, and generate alerts warranting further investigation, thereby ensuring compliance with Bank Secrecy Act (“BSA”) and anti-money laundering (“AML”) regulations. Additionally, automation can be used in the context of Know Your Customer (“KYC”) processes to verify customer identifies, perform due diligence checks, and maintain up-to-date records that meet stringent regulatory requirements.
In the healthcare industry, automation enables organizations to comply with the patient privacy provisions of the Health Insurance Portability and Accountability Act (“HIPAA”) by permitting compliance personnel to maintain appropriate controls and generate audit trails. Automation can also be leveraged to inform accurate coding of medical procedures and diagnoses, reducing errors in billing and ensuring compliance with coding standards and regulations.
Getting started with Compliance Automation
The adoption of automated compliance program processes is a multi-faceted effort that requires careful planning on the part of the organization.
As a threshold matter, organizations should objectively assess their overall compliance needs, identify the regulatory requirements relevant to their operations, and evaluate their existing processes to identify workflows that could be automated. The organization should clearly define its goals for automating these processes, such as reducing reliance on manual efforts, enhancing accuracy, or ensuring more diligent or timely compliance with government mandates.
Next, the organization should research and evaluate a variety of automation tools and software solutions tailored to their specific operational needs and industry requirements. Here, issues like functionality, scalability and cost-effectiveness should be considered. The organization should strive to select an automated solution that offers workflow customization, data encryption, audit trail generation, and robust reporting capabilities.
Finally, once selected and fully implemented, the organization should conduct periodic testing of automated processes and workflows to identify and remediate any errors or gaps in functionality and continuously validate the accuracy and reliability of automated activities.
Closing thoughts
For businesses navigating an increasingly complex and hostile regulatory environment, having an intelligently automated compliance program has emerged as a strategic imperative. Compliance program automation not only amplifies operational efficiency, but also fortifies organizational resilience against regulatory challenges. As compliance automation has grown more sophisticated, particularly with the integration of AI and machine learning, regulators increasingly expect to see these technologies as part of any serious compliance program.
Michael Volkov specializes in ethics and compliance, white collar defense, government investigations and internal investigations. Michael devotes a significant portion of his practice to anti-corruption compliance and defense. He regularly assists clients on FCPA, UK Bribery Act, AML, OFAC, Export-Import, Securities Fraud, and other issues. Prior to launching his own law firm, Mr. Volkov was a partner at LeClairRyan (2012-2013); Mayer Brown (2010-2012), Dickinson Wright (2008-2010); Deputy Assistant Attorney General in the Department of Justice (2008); Chief Counsel, Subcommittee on Crime, Terrorism and Homeland Security, House Judiciary Committee (2005-2008); and Counsel, Senate Judiciary Committee (2003-2005); Assistant US Attorney, United States Attorney's Office for the District of Columbia (1989-2005); and a Trial Attorney, Antitrust Division, United States Department of Justice (1985-1989).