The role of RegTech and AI in financial regulation

The financial services sector is undergoing significant change as regulatory demands multiply and technology moves forward. Instead of viewing compliance as little more than a box-ticking exercise, firms now see it as central to their strategy. RegTech and artificial intelligence are no longer optional extras—they’re at the heart of efforts to boost efficiency, shape risk management, and create genuine competitive advantage.

Recent Regulatory and Technology Developments

The industry reached a key turning point in September 2025. The EU Data Act came into effect on 12 September, while the UK regulator's live AI testing initiative closed to new applicants on 5 September. This marks the start of real-world changes. More financial institutions are embracing generative AI in their compliance teams, bringing new challenges but also real commercial benefits.

Today’s Regulatory Technology Environment

Rather than just dealing with new rules as they arrive, banks now use RegTech to get ahead of risks and streamline their operations. Legacy systems are swiftly being replaced by cloud platforms that scale easily, save money, and deliver up-to-the-minute reporting. These systems give financial institutions the tools to respond quickly as rules evolve, helping them keep up resilience in the face of growing complexity.

Integrating artificial intelligence into regulation is reshaping the industry. Generative AI is used for monitoring compliance in real time, automating reports, and making fraud detection far more effective than old rule-based approaches. Sophisticated algorithms reveal trends that weren’t noticeable before, while natural language technology makes it possible to interpret regulatory documents and guidance automatically.

After the close of applications earlier in September, the UK’s AI testing project is now assessing solutions in controlled settings. Regulators and financial institutions are working together, gaining practical insights that should improve how AI is used in compliance.

Changing Regulatory Oversight

Regulators worldwide are adapting how they supervise the sector, making space for technological innovation without compromising stability. The Financial Conduct Authority, Bank for International Settlements, and others have launched several AI-focused supervisory initiatives this year, signalling a marked shift in approach. Regulatory sandboxes, for example, allow banks and regulators to experiment with new technology in live conditions and gather valuable data on real-world results.

The appetite for better data management and analytics is growing, as real-time reporting becomes the norm. Banks are investing heavily in technology that can capture, process, and transmit regulatory data more swiftly and accurately than ever.

Practical Applications of AI in Compliance

AI-driven compliance tools aren’t just theoretical—they’re delivering measurable results. Automated systems for anti-money laundering and risk monitoring are cutting down on false positives and improving accuracy, lowering costs and making service better for customers. With larger transaction volumes and tougher scrutiny across jurisdictions, these gains are all the more important.

Change management tools powered by AI are now able to pinpoint new regulatory requirements, assess their impact, and produce practical steps for implementation. Automating reporting processes helps reduce errors and means submissions to regulators are more timely.

Implementation Challenges and Building Trust

Despite their promise, AI systems in compliance aren’t straightforward. Their "black box" nature means banks must be transparent, explaining how decisions are made and ensuring customers and regulators have confidence in the process.

Managing bias in automated systems is critical—firms need robust methods to spot and tackle unfair outcomes. Integrating new technologies with ageing IT infrastructure remains a major project, demanding investment and careful planning to keep everything running smoothly.

Model governance frameworks are developing rapidly to cope with complex machine learning systems. The old ways of validation don’t always suffice, so new procedures for monitoring model performance and keeping systems compliant are needed.

Gaining a Competitive Edge

Financial institutions who get RegTech and AI implementation right stand to gain a real advantage. Automating routine tasks frees up teams to focus on strategic priorities and customer care, improving operational efficiency and market position.

Better data quality, thanks to advanced RegTech platforms, leads to smarter risk analytics, clearer customer insight, and faster decision-making. Investing in regulatory data infrastructure brings rewards well beyond simple compliance.

RegTech does more than just cut costs—it helps firms pivot faster when rules change, which is crucial in today’s competitive climate. AI-powered risk models spot developing compliance risks early, supporting proactive management.

Looking Forward

As of October 2025, the RegTech sector is expanding quickly, driven by growing regulatory complexity and rapid tech development. Banks now view investment in compliance technology as essential, and regulators increasingly expect firms to use the best available tools. Those slow to adopt advanced RegTech solutions risk higher costs and tighter scrutiny.

Collaboration between banks, technology providers, and the regulators is increasing. Success will depend on involving all relevant parties in the design and roll-out of new solutions that balance business goals and regulatory needs.

Learning from Industry Peers

Peer learning is more valuable than ever. The approaches of industry leaders to RegTech and AI provide a clear guide for those developing new strategies. As the pace of regulatory change accelerates, real-world experience is key to managing both challenges and opportunities.

On 5 November, senior regulatory professionals will meet in London for RegTech Forum 2025 to discuss these issues. The event will highlight practical AI and RegTech use cases, sharing lessons on trust, implementation, and overcoming challenges.

This is a pivotal moment, with rapid regulatory and technological shifts underway. Banking firms need practical advice from experienced peers if they’re to thrive in these live environments.

The Way Ahead

RegTech and AI are fundamentally changing how compliance operates. True success now depends on organisational change, close engagement with regulators, and ongoing skill development. The leading strategies combine tech innovation with a firm grasp of compliance and commercial priorities.

Firms who act decisively and strategically will help shape future financial regulation, improving both compliance and their position in the market. There’s no room for half-measures; bold moves and a clear strategic approach are needed as the sector continues to evolve.

Take the opportunity at RegTech Forum 2025 to learn directly from those leading the way in turning compliance into a competitive advantage.

Join us on November 5th at the historic Guildhall alongside regulatory heads from major financial institutions.

Request your in person pass here: https://lnkd.in/eHVcnBBt