Compliance Automation: How it Works & How to Implement it

The Importance of Compliance

Compliance automation is becoming essential for industries under pressure to meet complex, fast-changing regulations – from finance to healthcare and cybersecurity. But what happens when compliance fails?

A stark example: Artis Finance, an invoice-finance firm, recently collapsed into administration after it was revealed that key documents sent to lenders had been altered. The fallout triggered bond defaults and a forensic investigation by PwC.

Similarly, Metro Bank’s compliance automation system failed to monitor over 60.5 million transactions due to data feed errors – a £51 billion oversight.

These incidents show the high cost of non-compliance and the risks of doing automation wrong. In this article, we’ll explore how compliance automation works, why it’s critical to get it right, and how it helps organizations stay efficient, secure, and audit-ready.

What is Compliance Automation?

Compliance automation refers to the use of artificial intelligence and SaaS (Software-as-a-Service) platforms like Vestlane to manage, monitor, and enforce regulatory compliance.

Instead of relying on manual tasks like spreadsheets, email reminders, and physical audits, companies can automate compliance activities through specialized software. 

Some of these types of compliance software can track regulations, detect violations, and generate reports in real-time data.

Compliance systems integrate with existing organisational infrastructures, automating data collection to ensure accuracy and consistency in compliance reporting.

They should also facilitate risk management by identifying potential compliance gaps before they become liabilities.

In industries like private equity, banking, and healthcare, where regulations change frequently, automation helps firms stay ahead without dedicating entire teams to constant oversight.

Last year, Citizens Bank in the US reported that 97% of private equity financial leaders are utilizing AI for tasks such as fraud detection, payment automation, and risk assessment.

In general, effective automated compliance solutions provide continuous monitoring, detect vulnerabilities, and present users with corrective actions to address compliance risks before they escalate.

Key Principles of Compliance

Ensuring compliance requires a structured approach to risk management and regulatory adherence. The following four tenets form the foundation of an effective compliance program:

• Prevent – Implement policies, training, and controls to proactively mitigate risks and ensure adherence to regulations.
• Detect – Use monitoring, audits, and reporting mechanisms to identify potential compliance violations or risks.
• Report – Establish clear channels for reporting issues, ensuring transparency and accountability.
• Remediate – Take corrective actions to address violations, strengthen controls, and prevent future occurrences.

What are the Benefits of Compliance Automation?

One of the main advantages of compliance automation is probably efficiency.

Manual work related to compliance—such as compiling regulatory reports, tracking policy updates, and conducting internal audits—consumes time and increases the risk of human error.

Automated systems can instantly flag inconsistencies, generate reports, and ensure continuous compliance without constant oversight.

Compliance automation also strengthens data protection and data security.

By reducing human intervention, businesses lower the risk of security breaches caused by human error.

Automated compliance tools also facilitate incident response, ensuring that companies can quickly identify compliance violations before they become legal or financial liabilities.

Another key advantage is third-party risk and vendor risk management.

Organizations rely on external vendors, suppliers, and contractors, all of whom must adhere to regulatory requirements.

And this is especially true under the new Digital Operational Resilience Act.

Compliance automation helps businesses assess vendor risk by tracking certifications, audits, and industry standards compliance in real time.

For firms in finance and private equity, compliance automation streamlines reporting obligations, reducing the risk of regulatory penalties.

In healthcare, it ensures compliance with HIPAA and GDPR, preventing data privacy violations.

Cybersecurity teams use automation to maintain compliance with frameworks like NIST, preventing security breaches and improving security compliance.

How to Implement Compliance Automation: A Step-by-Step Process

While compliance automation offers undeniable benefits, implementation requires careful planning.

A poorly executed automation strategy can lead to inefficiencies and vulnerabilities.

1. Assess Your Compliance Needs:  Every industry has different regulatory requirements. Identifying the most time-consuming and risk-prone compliance activities is the first step.
2. Select the Right Automation Tools: Not all compliance software is built the same. Businesses should evaluate platforms based on industry relevance, integration capabilities, and ease of use. Many SaaS solutions offer customizable templates to speed up implementation.
3. Integrate with Existing Systems: A good compliance automation system should work seamlessly with existing infrastructure, systems, and data collection processes.
4. Establish Automated Monitoring & Reporting: Automation should provide real-time security compliance tracking, alerting teams to potential violations and recommending corrective actions before they escalate.
5. Regularly Update & Optimize: Regulations change, and compliance automation tools must evolve accordingly. Routine compliance updates and audits ensure systems remain effective and aligned with evolving industry standards.

Which Industries Benefit the Most from Compliance Automation?

Compliance automation is valuable across pretty much any industry.

However, some sectors gain more due to high regulatory standards placed upon them.

Private Equity & Financial Services

Investment firms, hedge funds, and asset managers deal with extensive compliance procedures, from SEC regulations to anti-money laundering laws.

Automating compliance reduces manual tasks and ensures transparency in compliance workflows, helping GPs stay ahead of regulatory risks with confidence.

To navigate some of these demands effectively, general partners can use our ultimate GP checklist to stay organized.

Healthcare & Life Sciences

With strict privacy laws such as HIPAA and GDPR, healthcare organizations must secure sensitive data while maintaining data privacy and data protection standards.

Automation helps manage records, incident response, audit trails, and risk assessments efficiently.

Banking & Insurance

Regulated by entities like the Financial Conduct Authority (FCA) and Basel III, banks and insurers must maintain strong risk management protocols.

Compliance automation ensures continuous adherence to evolving financial regulations while improving data security and reducing third-party risk.

Cybersecurity & IT

Cybersecurity frameworks such as SOC 2, NIST and ISO 27001 require rigorous security compliance standards.

Energy Sector

With environmental and safety regulations becoming more stringent, energy companies use automation to manage compliance with laws like the Clean Air Act and ISO 14001 while ensuring incident response capabilities.

How Compliance Automation Can Help in Private Equity

Private equity firms face some of the most complex compliance procedures in finance.

In 2024, a study by PureProfile, in collaboration with Ocorian and Bovill Newgate, found that nearly 88% of private investment fund managers expect compliance risk within their organizations to rise over the next two years.

Managing investor disclosures, ensuring AML compliance, and adhering to stringent regulations are all time-consuming manual processes.

Compliance automation simplifies these tasks, reducing workloads and improving data accuracy.

By integrating compliance automation tools, PE firms can:

• Streamline investor due diligence by automating data collection, background checks, and documentation.
• Enhance regulatory reporting by generating accurate, audit process reports with real-time data.
• Mitigate risks proactively by flagging potential compliance issues and implementing corrective actions before they escalate.

What Does It Mean to Be Audit-Ready in Private Equity?

For private equity firms operating in Europe, being audit-ready means maintaining a continuous state of financial and regulatory preparedness, ensuring that all records, compliance frameworks, and reporting structures can withstand scrutiny from auditors, regulators, and investors at any time.

With increasing oversight from the European Securities and Markets Authority (ESMA) and national regulators, as well as stringent requirements under the Alternative Investment Fund Managers Directive (AIFMD), firms must be able to demonstrate transparency, risk management, and strong governance.

Key Aspects of Being Audit-Ready in European Private Equity

1. Full Compliance with European Regulatory Frameworks

European private equity firms are subject to a complex and evolving regulatory landscape.

Maintaining audit readiness means adhering to:

• AIFMD – Ensuring proper risk management, capital requirements, and investor reporting for alternative investment funds (AIFs).
• AML & KYC Regulations – Demonstrating rigorous anti-money laundering (AML) and know-your-customer (KYC) procedures to prevent financial crime.
• SFDR (Sustainable Finance Disclosure Regulation) – Meeting disclosure requirements related to sustainability risks and ESG (Environmental, Social, and Governance) factors.
• GDPR (General Data Protection Regulation) – Guaranteeing strong data privacy, data protection, and data security measures when handling investor and portfolio company information.

2. Transparent & Standardised Financial Reporting

Regulators and limited partners (LPs) expect real-time data and audit-trail-compliant financial statements that align with international standards, like IFRS (International Financial Reporting Standards).

To remain audit-ready, private equity firms must:

• Maintain accurate valuation methodologies for portfolio companies, following best practices for fair value measurement.
• Ensure that financial statements are structured, reconciled, and prepared with real-time data, reducing discrepancies during audits.
• Adopt automated compliance workflows to track changes in tax laws, regulatory adjustments, and reporting obligations across different European jurisdictions.

3. Strong Risk Management & Internal Controls

Audit-ready private equity firms have established frameworks for identifying and mitigating risks related to:

• Third-party risk – Regularly assessing the compliance and operational risks of external fund administrators, portfolio companies, and service providers.
• Vendor risk – Evaluating contracts and obligations with external parties to ensure regulatory alignment.
• Operational risk – Implementing incident response plans to address compliance breaches, cybersecurity threats, or governance failures.

4. Efficient Investor Reporting & Disclosures

European LPs expect standardised, transparent, and timely disclosures. This requires:

• Predefined reporting templates that meet regulatory and investor expectations.
• Automated data collection and reporting tools to eliminate manual work and reduce errors in financial and compliance reporting.
• A proactive investor relations strategy, ensuring LPs receive relevant updates.

5. Digital Transformation & Compliance Automation

Firms that rely on manual processes to manage compliance and audits are at a competitive disadvantage.

Modern private equity firms are implementing SaaS technology into their investment management strategies:

• Reduce reliance on manual spreadsheets and fragmented systems.
• Ensure seamless audit process tracking with automatic documentation and flagging of potential compliance risks.
• Enhance security compliance through continuous monitoring of data privacy and cybersecurity risks.

Top Compliance Automation Tools & Platforms in 2025

Compliance is clearly a critical concern for companies across all sectors but especially so within the highly regulated industry of private equity. 

For this next section it is also important to know the difference between compliance-native and compliance-embedded solutions.

Compliance-native tools are built specifically for regulatory tasks like AML and KYC, while compliance-embedded platforms integrate these functions into broader workflows such as investor onboarding or fund administration, often through partnerships.

We’ve listed below a breakdown of leading solutions in both spaces.

1. Compliance-Native Tools

These platforms are built specifically to address regulatory and anti-money laundering (AML) requirements, often serving as core infrastructure for firms needing standalone compliance capabilities:

• ComplyAdvantage – A specialized AML suite of AI-driven solutions designed to help businesses detect and prevent financial crimes such as money laundering and fraud.
• Kerberos – German-based AML/KYC platform focused on financial institutions and regulated entities.
• Valid8Me – A secure digital identity and KYC platform that enables efficient verification processes across jurisdictions.

2. Embedded Compliance Within Fund Operations

Rather than acting as standalone compliance tools, these platforms integrate compliance features—often in partnership with the above providers—into areas like investor onboarding, capital calls, and fund administration.

This approach can help complete the circle within private equity management:

• Vestlane – That’s us. We’re a private equity-focused platform that streamlines fund operations, including investor onboarding. We collaborate with compliance-native tools to deliver embedded KYC/AML solutions.
• Passthrough – Offers an investor onboarding process with integrated compliance workflows tailored to fund managers.
• Mesh ID – Provides reusable KYC for investors, focusing on identity verification and seamless collaboration across funds.

What is the Future of Compliance Automation?

It’s safe to say that the future of compliance automation will be driven by artificial intelligence and machine learning.

Emerging technologies are enabling predictive compliance, where AI can foresee regulatory changes and suggest proactive measures.

Blockchain-based compliance solutions are also gaining traction, ensuring tamper-proof audit process trails and data protection.

For instance, in private equity, blockchain can facilitate investor accreditation verification and secure transaction records.

We believe Vestlane is also shaping the future. We are providing a smooth workflow for fund managers, law firms, fund admins, hedge funds, and other fund structures.

By solving investment management painpoints across all fund types and structures, we deliver a fully integrated platform that brings fund managers, law firms, and fund admins together.

If you found this deep dive into compliance automation insightful, we’d love to show you more about Vestlane. Contact our team using the form below.