Regulators' AI adoption will make or break finance's future, VARA CEO says

The article frames a critical shift in how financial regulation will operate. Historically, banks have spent over a decade and billions of dollars on regulatory technology with mixed results—compliance budgets and headcount climb steadily while productivity gains remain linear at best. The gap between leading regulators (those running serious supervisory-technology programmes) and the majority (still operating on PDF rulebooks and sample-based inspections) is widening. Virtual assets are the catalyst for change, not because they are large in themselves, but because their structure forces regulators to build genuine innovation: on-chain audits instead of sampled reviews, real-time monitoring instead of after-the-fact reporting, programmable compliance instead of rule-engine workflows. This is not optional; it is the only way to supervise a 24/7 cross-border smart contract or autonomous lending protocol.

The transformation will unfold in two waves. The near-term wave (12-to-24 months) is already arriving and will compress routine processes—authorization reviews that take weeks today will compress into days, and AI will learn to read transactions in context rather than flag them by blanket rules, cutting compliance false-positive rates currently running between 90% and 95%. The medium-term wave (three-to-five years) will break the existing model entirely: the interface between regulators and licensees will move from periodic submissions to continuous real-time data exchange, which will collapse the operational case for sample-based inspection and shrink compliance functions inside global banks. The article identifies a bottleneck: a firm can build supervisory-grade compliance infrastructure, but if its regulator still demands PDF returns, the productivity gains stay trapped. Capital follows regulators that move. This dynamic will be reinforced by how regulators answer an urgent accountability question—who carries legal responsibility when AI generates a suspicious activity report or contributes to a fitness-and-propriety decision—with MiCA's full implementation across Europe and the United States' CLARITY Act framework serving as two critical moments where these answers will be given.