Sovereign wealth funds are behind the curve when it comes to using artificial intelligence to “future-proof their compliance functions,” according to a report based on a survey conducted by the International Forum of Sovereign Wealth Funds and the State Oil Fund of the Republic of Azerbaijan.
“While 75% of sovereign wealth funds use some form of compliance technology, adoption of advanced tools remains low,” the report stated. “Despite rapid advancements in artificial intelligence, only 15% of survey respondents currently use AI-enhanced tools to support their compliance efforts.”
The report is based on a survey of 21 sovereign wealth funds that together manage more than $8 trillion in assets. Respondents included senior compliance officers, risk managers, legal counsels and C-suite executives.
The issues identified by respondents as most concerning to sovereign wealth funds over the last two years were regulatory changes (57%), data and cyber security (52%) and sanctions compliance (48%), the survey found.
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“These findings underscore the growing pressure on sovereign wealth funds to navigate regulatory complexity while managing emerging digital and geopolitical risks,” the report, “Compliance in Context: Governance Structure and Risk Priorities in Sovereign Wealth Funds,” stated. “Managing multiple jurisdictions and regulatory changes remains the most critical challenge for sovereign wealth funds’ compliance teams, reflecting the growing complexity of navigating diverse regulatory environments.”
In sovereign wealth fund compliance, AI can assist with third-party risk management, risk assessment, document drafting, data analytics and regulatory reporting, according to the report. Although the current uptake of AI-aided compliance technologies is low, the findings suggested this will gradually change as these asset owners seek to streamline their operations.
To catch up with the times, the report suggested sovereign funds expand their use of regulatory change management and AI-driven compliance tools. It also stated that integrating data analytics platforms could improve monitoring, reporting and risk assessment. Additionally, the report recommended the funds put a higher priority on cybersecurity and data protection tools as digital risks increase.
The report also covered other compliance issues faced by sovereign wealth funds, such as limited communications between their compliance operations and C-suite executives. The survey found that many of the respondents keep their compliance operations tucked within their legal or risk units, and members of those teams therefore have limited direct reporting to the funds’ CEOs or boards.
According to the report, SWFs can potentially improve oversight and independence by setting up direct reporting lines between compliance and the company’s board, or with a committee on the board. If possible, the report recommended that funds make their compliance functions a stand-alone unit.
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Tags: compliance, International Forum of Sovereign Wealth Funds, Sovereign Wealth Fund
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