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Risk and Compliance Research Outlook 2024

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RISK AT THE VANGUARD OF AI ADOPTION

This spring, Celent surveyed 23 bank executives in roles tied to innovation about the adoption of generative artificial intelligence (GenAI) across different areas within the bank. We talked to them about the range of GenAI projects underway at the bank and their progress moving these GenAI projects into production for each area of the bank. Looking across the functions within the bank, we found that the Risk and Compliance function was at the forefront of GenAI adoption. Looking the chart below, 64% of GenAI projects in the Risk & Compliance space are either already in production or in the proof-of-concept stage. This is second only to the IT function, which was 72%.

GenAI Adoption Rates by Function in Banking

Source: Celent Bank GenAI Adoption Survey March 2024

We don’t consider this a benchmark for GenAI adoption progress. The survey participants tended to be innovation frontrunners and hence are ahead on the GenAI adoption curve compared to the majority of banks. However, it does confirm what we have been hearing anecdotally, that Risk is being used as a proving ground for this technology. We think this is due to several factors:

  • Risk is an internal process with less risk of adversely impacting clients.
  • Risk & Compliance has large teams in place who are manually analyzing unstructured data (the type of analysis where GenAI is most capable).
  • Risk teams typically have good relationships with regulators and are well situated to test regulators’ openness to the use of GenAI technology.

Our most recent research, GenAI-oneers in Risk & Compliance, looks in depth at which GenAI use cases banks are pursuing, what is holding them back, and what is helping them move forward. In July, we will publish a more specific view of the use of AI in financial crime compliance. This report looks at the different anti-financial crime processes and discusses which types of AI are most useful for which purposes in each step of the process.

Stepping back to look at IT budgets and growth overall, Risk teams must still fight to get their fair share. Celent’s IT spending forecast by domain, compares the IT budgets for Risk against those of the other functions within a bank. Risk and Compliance budgets currently constitute 13.9% of all bank spending and that percentage is expected to remain flat for this year and next, then grows slightly in 2026 to reach 14.2% of the overall bank budget in 2028.

Celent estimates that IT budgets in Risk will grow at a compound annual growth rate of 5.3% between now and 2028. While that is slightly faster than the overall growth rate for Retail Banking at 4.9%, front office capabilities like marketing, product development, and digital channels are growing near 6.5%.

In July, we will look more deeply at IT budgets for Risk. We will publish a deep dive on R&C IT and operational spend in banking that will detail the breakdown in spend across financial risk, operational risk, anti-financial crime, and compliance. It will forecast both dollar amounts and growth rates for each of these and their subcomponents. The study will also look at how spend varies across geographies and will have a breakdown between corporate banking and retail banking.

Looking past July, Celent has identified five key business themes that are driving technology spending and strategy for 2024, which focus our research:

  • Anti-Financial Crime
  • AI Readiness
  • Emerging Risks
  • Operational Resilience
  • Generative AI

These were introduced in our Dimensions: Risk & Compliance IT Pressures and Priorities report and our research agenda for the rest of this year closely follows these priorities, combining observations and insights from client conversations, desk research, and primary surveys.

Our research agenda for the rest of this year closely follows these prorities, combining observations and insights from client conversations, desk research and primary surveys.

Contact us for more information about what we have planned in Q3.

If you are a client, please sign in to access a detailed view of our 2024 agenda.