This is the first module in Sigma360’s AI Explained series – a beginner-friendly guide to understanding artificial intelligence in financial crime compliance. This series will break down the fundamentals of how AI works, why it matters in today’s compliance landscape, and how we can best implement AI within our risk screening workflows.
In this module, we will focus on regulatory perspectives on Generative AI in FCC.
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💡 Key Term: GenAI (Generative AI)
A type of artificial intelligence that can create new content (e.g., text, images, or summaries) based on patterns in data. In financial compliance, it helps teams analyze documents, news, and entities faster.
Traditional AI differs from Generative AI in that it identifies and classifies existing patterns in data, instead of generating new content. In financial crime compliance, it helps teams classify and extract entity data, for example to tune adverse media returns.
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The financial crime compliance landscape continues to change rapidly in 2025. Despite an estimated $275 billion USD spent on compliance efforts, global money laundering has surged to a $2 trillion problem, as reported by the United Nations Office on Drugs and Crime.
Traditional, rule-based anti-money laundering solutions including screening systems are becoming inadequate against ever-evolving criminal typologies. Significant resources are currently spent on clearing false positives and the real risks are often missed. Thus, there is not only great interest in AI based solutions but intense focus on and generation of innovative solutions.
Recently, regulators have been strongly advocating for the modernization of financial crime compliance (FCC) screening. There has been strong interest in the adoption of AI-powered approaches as new AI technologies continue to be released. Many regulatory experts believe Generative AI (GenAI) in particular can begin to address vulnerabilities within current compliance systems.
A Paradigm Shift in Regulatory Thinking
The regulatory perspective on GenAI has shifted from initial skepticism to strategic adoption. Regulators now recognize GenAI’s capacity to help teams ingest and process huge volumes of data, enabling them to make decisions confidently within an expanding threat landscape.
The US Treasury, in its "National Strategy for Combating Terrorist and Other Illicit Financing" (2024), acknowledges GenAI's potential to “sift through and synthesize vast quantities of data generated in financial crime investigations”. This can help alleviate teams’ increasing workloads, especially in manually processing and analyzing large data sets.
For example, GenAI can distill data from various sources, such as adverse media and watchlists, to quickly consolidate and identify critical risk signals. GenAI can also generate summary narratives for analysts to speed up due diligence report creation. The Treasury further emphasizes GenAI’s role in enabling financial institutions to “more effectively identify illicit finance patterns, risks, trends, and typologies”.
The Office of the Comptroller of the Currency (OCC) recently articulated their forward-looking perspective on GenAI and related technologies, stating that they are “monitoring emerging technologies like generative AI, agentic AI, and quantum computing, which hold potential to revolutionize underwriting, fraud detection, and customer engagement". This statement reflects a broader shift in the financial compliance space towards interest in the adoption of GenAI.
Regulatory Leadership on GenAI Innovation
The European Union has taken a different but equally supportive approach through the EU Artificial Intelligence Act, which came into effect in 2024. The legislation introduces the concept of AI regulatory sandboxes, creating what the Act describes as "controlled environments where AI systems can be developed and tested with regulatory guidance before market release. They improve legal certainty, support compliance, allow for processing of personal data, and facilitate market access for SMEs and startups".
This regulatory sandbox approach represents the EU’s understanding of how innovation can occur in the financial compliance sector. By providing safe harbors for experimentation, European regulators are actively encouraging, and facilitating, the development of GenAI solutions that can address compliance challenges.
The United Kingdom has also emerged as a particularly progressive force in AI regulatory innovation. In June 2025, the Financial Conduct Authority (FCA) launched their Supercharged Sandbox in collaboration with NVIDIA, one of the most comprehensive regulatory initiatives that supports AI experimentation in financial services.
The FCA Supercharged Sandbox goes beyond traditional regulatory sandboxes, providing firms with direct access to advanced computing infrastructure through NVIDIA's platform and AI Enterprise Software. This initiative is designed for firms in the discovery and experimentation phase with AI, offering smaller firms the regulatory guidance and technical capabilities they often lack.
The FCA’s chief data, intelligence and information officer explained, "This collaboration will help those that want to test AI ideas but who lack the capabilities to do so. We'll help firms harness AI to benefit our markets and consumers, while supporting economic growth."
This sandbox addresses a gap in the market where many financial services firms, particularly smaller ones, recognize AI's potential but lack the substantial computing resources required for experimentation. By democratizing access to enterprise-grade AI infrastructure, the Supercharged Sandbox helps ensure that AI innovation in financial crime compliance isn’t limited to large institutions.
Addressing GenAI Implementation
While regulators are enthusiastic about GenAI's potential, they also acknowledge the importance of responsible implementation. The US Treasury emphasizes that financial institutions should approach AI adoption with appropriate risk management, noting that "financial institutions should consider their enterprise risk tolerance when implementing AI systems, particularly Generative AI."
Regulators recognize that challenges such as bias and hallucinations exist, and require careful consideration. However, they view these issues as manageable implementation issues rather than barriers to adoption. The US Treasury suggests that institutions should implement appropriate safeguards like anti-bias training data standards and explainability requirements.
US Treasury Under Secretary for Domestic Finance Nellie Liang notes that the goal is "fostering innovation in financial services while mitigating potential risks" through continued stakeholder engagement. To responsibly deploy GenAI systems, institutions must have proper implementation frameworks and data protection, and implement ongoing monitoring to ensure model quality, robustness and transparency over time.
The Bottom Line: GenAI Holds Significant Potential
Generative AI holds significant potential to automate compliance processes and supplement workflows, enabling screening at larger scale to tackle unprecedented risks. The move towards GenAI is already occurring within existing anti-money laundering (AML) and financial compliance frameworks, suggesting that GenAI adoption can happen within pre-established regulatory structures and can be deployed and leveraged with relative ease.
By recognizing GenAI's potential, regulators are charting a course toward a more effective, efficient, and responsive compliance ecosystem. The question is no longer whether GenAI will transform financial crime compliance, but how quickly and effectively our industry can adapt to this new paradigm.
⏭️ Next up in the series: Artificial Intelligence You Can Trust: An Evaluation Framework for Navigating Business Stakeholders.
In financial services, AI must be deployed responsibly and be able to withstand rigorous regulatory scrutiny. This upcoming module introduces Sigma360's GRACE framework, which provides the comprehensive governance model you need to confidently deploy and validate Generative AI in high-stakes environments.
Sigma360's AI Explained series is your comprehensive guide to understanding AI's role in financial crime compliance. Ready to stay ahead of the curve? Join our newsletter mailing list to receive the complete series and industry insights delivered directly to your inbox.
