As the sophistication of Generative AI continues to mature, the financial services industry is set in 2026 to increasingly apply the technology’s use to Know Your Business (KYB) / Know Your Customer (KYC) regulatory compliance processes, specifically within the arena of Anti-Money Laundering (AML).
Doing so could mean that institutions not only reshape the historical operations of their compliance teams, but also improve client experiences through a renewed, proactive approach to risk management characterised by effective monitoring and greater governance of screening standards.
The impact of AI on KYC so far
A key driver of a potential increase in 2026 of KYB / KYC compliance solutions equipped with large language models is a growing recognition within the financial services industry that they are becoming increasingly effective at eliminating the generation of so-called false positive alerts.
For example, one investment bank saw decreases of up to 60%; this is a result of the integration of more sophisticated AI models capable of understanding context and, thus, refining alerts, enabling compliance teams to focus time on genuinely suspicious behaviour rather than the mundane task of sifting through low-risk flagging.
Read more about harnessing AI to fight financial crime (HSBC)
The use by compliance teams of risk management solutions capable of facilitating agentic AI workflows is now also gaining momentum. Such systems can autonomously gather customer information, build risk profiles and draft suspicious activity reports for human approval. This evolution arguably marked the start of a more automated financial crime prevention operations landscape in which technology performs the heavy lifting and human specialists oversee decision-making.
These developments are not only supporting the practical uptake of AI within the investment banking industry’s client services and regulatory compliance arenas but are also driving trends among thought leaders regarding how the technology’s usage could change and grow over the medium-to-long-term. For example, a concept that gained traction in 2025 was that of perpetual KYC, which is the idea that AI-powered systems could be used to maintain constant oversight of customer activity and behaviour, triggering enhanced reviews the moment a risk signal changes. This shift from static to continuous monitoring would make historical KYC processes dynamic from a risk management perspective in terms of their alignment with the real-time nature of financial crime.
Learn more about perpetual KYC here
A Year of challenging technology decisions
The advent of real-time monitoring in KYC and AML would equip financial institutions to move toward more fully automated approaches to client / counterparty due diligence.
Establishing strong AI governance frameworks early will be essential, supported by a firm commitment to data quality and completeness.
When AI systems capable of assessing identity, transaction patterns and behavioural signals during interactions are considered, then the enablement of faster onboarding and more effective approaches to financial crime prevention could become a reality.
However, new regulations under consideration in the EU, UK and US in 2026 designed to emphasise the explainability, human oversight and – thus – transparency of underlying AI models could mean investment banks are prevented from taking the human element of AML and KYC monitoring out of the loop entirely. For example, the EU AI Act – which is set to go-live in August 2026 – along with the US Colorado AI Act – set for enactment in February 2026 within the state – could mean firms are mandated to ensure that AI models are ethical and free from unfair bias. As a result, human validation would become mandatory for many decision points, ensuring that AI enhances risk assessment rather than replacing human judgement.
Learn more about the AI Act here
Learn more about the US Colorado AI Act here
Global regulations are also broadening the scope of due diligence expectations. With the growing influence of the new EU AML Authority, a stronger push toward harmonised EU standards are expected throughout 2026. At the same time, AI governance requirements are becoming embedded into due diligence frameworks, compelling institutions to demonstrate not only compliance but also ethical and transparent use of automated systems. Traditional financial due diligence is expanding to include ESG considerations, supply-chain integrity, cybersecurity and non-financial misconduct, transforming it into a more strategic, sector-wide assessment of risk.
Learn more about the EU AML Authority here
While these regulatory proposals present new opportunities for the financial services industry to utilise new technology to develop standardised KYC requirements for international corporations, thus reducing current requirements for duplicative reporting across a multitude of regulatory jurisdictions, the mandates could also incentivise additional spending on systems designed to ensure business-as-usual compliance over the short-term.
How RegTech can support compliance in the AI era
RegTech will play an essential role in supporting compliance functions as regulations continue to evolve.
Many institutions are turning to technology that continuously tracks regulatory changes, ensuring they remain aligned with updates such as the UK Financial Services and Markets Act.
Learn more about the UK Financial Services and Markets Act
The rapid expansion of RegTech also introduces new challenges such as model drift and vendor fragmentation, which typically results in poor integration. There are also gaps in data lineage, which is the ability of a reporting entity to trace information from its original source through to an AI-generated decision; it is increasingly scrutinised by regulators yet remains poorly mapped in many institutions.
Key Takeaways for Businesses
As institutions prepare for these changes, several priorities stand out. Establishing strong AI governance frameworks early will be essential, supported by a firm commitment to data quality and completeness. Organisations that maintain clean and well-structured data will outperform those relying solely on sophisticated AI models.
Real-time, automated risk monitoring will become the new standard for financial crime prevention, and firms that delay investment in modern RegTech solutions may struggle to keep pace with rapid regulatory updates. Manual processes will increasingly become unsustainable in a world that demands speed, accuracy and continuous oversight.
With compliance functions under mounting pressure and the talent gap widening, many organisations are turning to expert partners for support. emagine continues to work closely with financial institutions to provide specialist AML and KYC expertise, strategic advisory services, digital transformation support, and tailored training to help teams adapt to emerging regulatory and technological expectations.