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The Impact of Norm AI on Transforming Regulatory Compliance through Artificial Intelligence

GOOVER DAILY REPORT July 17, 2024
goover

TABLE OF CONTENTS

  1. Summary
  2. 1. Introduction to Norm AI and its Mission
  3. 2. Implementing AI in Regulatory Compliance
  4. 3. Funding and Key Investors
  5. 4. Expert Advisory and Industry Collaboration
  6. 5. Current and Future Applications of Norm AI
  7. Conclusion

1. Summary

  • The report titled 'The Impact of Norm AI on Transforming Regulatory Compliance through Artificial Intelligence' explores how Norm AI, an AI-driven regulatory compliance platform, is changing the compliance landscape. The company, founded by John Nay, automates regulatory tasks, reducing complexity and workload for compliance teams. With significant funding from notable investors like Coatue Management LLC and collaboration with industry leaders, Norm AI has secured a strong position in the RegTech industry. The report highlights the platform’s ability to transform regulations into executable code using proprietary technology, thereby enabling businesses to comply more efficiently and cost-effectively.

2. 1. Introduction to Norm AI and its Mission

  • 2-1. 1.1 Background of Norm AI and Founder John Nay

  • Norm AI is an AI-driven regulatory compliance platform founded by John Nay. He is an expert in computer science who has taught law students about generative artificial intelligence. Nay founded Norm AI with the mission of automating regulatory compliance tasks to reduce the 'sludge' problem. Regulations have become increasingly complex, and compliance teams are overburdened. Even well-resourced companies struggle to adhere to regulations without restricting their operational speed. Norm AI automates these semi-structured, repetitive tasks to streamline compliance. John Nay has an impressive background that uniquely qualifies him for this endeavor. He authored the first AI course at NYU School of Law, conducted research in language modeling at Stanford Law School’s Center for Legal Informatics, and helped author the popular LegalBench benchmark. With his understanding of language modeling and appreciation of legal systems, John has focused on codifying legal systems into AI models. He previously founded Brooklyn Investment Group, an AI company with an SEC-registered investment adviser. For Norm AI, he recruited a founding team with strong depth, including COO Patrick Vergara, a law graduate from Stanford with experience leading product at Alkymi. The engineering team comes from top organizations such as Google, Meta, Stanford, Vanderbilt, and the federal government.

  • 2-2. 1.2 Mission to Automate Regulatory Compliance

  • Norm AI aims to revolutionize regulatory compliance by automating tasks traditionally done by compliance officers. Norm AI’s platform converts regulations into executable computer code and uses AI agents to conduct compliance analyses. This allows businesses to complete compliance tasks more efficiently and focus on higher-value activities. The company raised $11.1 million in a seed funding round led by Coatue Management LLC, involving participation from several other investors. Additionally, Norm AI secured $27 million in Series A funding led by Coatue, with other investors such as Blackstone Innovations Investments, New York Life Ventures, Citi Ventures, TIAA Ventures, and Jefferson River Capital (the family office of Tony James). This significant investment bolsters Norm AI’s capability to expand its platform and its client base. Norm AI simplifies the complexity of regulatory tasks by utilizing a proprietary language that translates government regulations and corporate policies into decision trees. Through this platform, AI agents autonomously produce accurate compliance findings. Norm AI's approach not only ensures regulatory adherence but also helps businesses reduce risk and free up valuable resources for more strategic tasks. This positions Norm AI at the forefront of the RegTech industry, enabling companies to comply with regulations more efficiently and cost-effectively.

3. 2. Implementing AI in Regulatory Compliance

  • 3-1. 2.1 Overview of Norm AI's Platform

  • Norm AI, founded by John Nay, is designed to address the increasing complexity of regulatory compliance by automating and streamlining regulatory tasks. The platform uses AI agents to automate many semi-structured and repetitive tasks, allowing compliance teams and business units to move faster while maintaining compliance. Norm's AI capabilities are focused on converting regulations into executable computer code, leveraging a proprietary language to translate government regulations and corporate policies into decision trees.

  • 3-2. 2.2 Conversion of Regulations into Code

  • Norm AI has developed a method to codify regulations using a proprietary language, turning them into decision trees that Regulatory AI Agents can execute. These decision trees allow for comprehensive compliance analyses conducted by AI agents, which can substantially reduce the time and resources required for regulatory assessments. This approach ensures that intricate regulations are transformed into actionable formats, making regulatory compliance more efficient and accurate.

  • 3-3. 2.3 Use of Proprietary Language and Regulatory AI Agents

  • The regulatory platform employs a specialized language to model government regulations and corporate policies. This is then utilized by Regulatory AI Agents to autonomously conduct compliance tasks. Users interact with Norm’s software by submitting artifacts for review, after which the platform produces accurate compliance findings. The system continuously updates its decision trees in response to regulatory changes. Additionally, the platform includes collaboration features, enabling users to tag each other, comment, and view historical decisions.

4. 3. Funding and Key Investors

  • 4-1. 3.1 Overview of Funding Raised

  • Norm AI has successfully secured a substantial amount of funding to support its operations and expansion. Notably, the company raised $11.1 million in its seed funding round, which was announced on Tuesday. This seed round was led by Coatue Management LLC. Subsequently, Norm AI raised an additional $27 million in a Series A funding round held in June 2024, also led by Coatue. Other participating investors in the Series A round included Bain Capital Ventures, Blackstone Innovations Investments, New York Life Ventures, Citi Ventures, TIAA Ventures, and Jefferson River Capital. Over the past 11 months, Norm AI has accumulated more than $38 million in total funding.

  • 4-2. 3.2 Major Investors and Their Contributions

  • The funding rounds for Norm AI were supported by various significant investors. The seed funding round saw major contributions from Coatue Management LLC. M13 Ventures Management LLC, a firm managed by brothers Courtney and Carter Reum, also participated in the seed round. Win Chevapravatdumrong, who is a partner and head of legal at M13, highlighted the potential of Norm AI's platform in automating corporate compliance. In the Series A funding round, Coatue was again the lead investor with additional contributions from Bain Capital Ventures, Blackstone Innovations Investments, New York Life Ventures, Citi Ventures, TIAA Ventures, and Jefferson River Capital, the family office of Tony James.

  • 4-3. 3.3 Utilization of Funds for Platform Expansion and Talent Acquisition

  • Norm AI plans to utilize the raised funds to expand its AI-driven regulatory compliance platform and grow its client base. The funds will be directed towards enhancing the platform's capabilities to efficiently convert complex regulations into executable computer code, known as Regulatory AI Agents. These agents are designed to automate compliance assessments, allowing companies to streamline their regulatory processes. Additionally, the funding will support recruitment efforts across several domains, including software engineering, AI engineering, legal engineering, and sales. This targeted investment in talent acquisition aims to boost the company’s expertise and capacity to meet increased demand, particularly from highly regulated industries.

5. 4. Expert Advisory and Industry Collaboration

  • 5-1. 4.1 Collaboration with Industry Leaders and Institutions

  • Norm AI has actively engaged in partnerships with renowned industry leaders and institutions to enhance its regulatory compliance platform. The company collaborates with multiple large language model providers to power its AI platform, including OpenAI, a prominent entity in the field of artificial intelligence. Through these collaborations, Norm AI aims to harness cutting-edge technology to simplify complex regulatory processes for its clients.

  • 5-2. 4.2 Composition of the Regulatory Advisory Board

  • Norm AI has established a regulatory advisory board to provide expert guidance on regulatory matters. The board comprises distinguished professionals with significant experience in regulatory law and compliance. Founding members include Katherine "Kate" Karas, former top lawyer at financial technology startup Chime Financial Inc.; Troy Paredes, a former SEC commissioner; Vanessa De Simone, compliance chief and deputy general counsel at Coatue Management LLC; and Susan Dudley, a former White House official and regulatory expert. This diverse board brings valuable insights and expertise to support Norm AI's mission.

  • 5-3. 4.3 Contributions from OpenAI, Fenwick & West, and Other Advisors

  • Norm AI benefits from the contributions of various advisors who play crucial roles in its development and success. OpenAI, known for its leadership in artificial intelligence technology, collaborates with Norm AI to enhance the capabilities of its regulatory compliance platform. Additionally, Fenwick & West, a law firm known for its support of startups, provides legal advisory services to Norm AI. The collective input from these advisors ensures that Norm AI stays at the forefront of technological and regulatory advancements, allowing it to deliver effective compliance solutions to its clients.

6. 5. Current and Future Applications of Norm AI

  • 6-1. 5.1 Applications in Financial Services

  • Norm AI is applying its AI-driven regulatory compliance platform within the financial services sector. Recognizing the highly regulated nature of financial services, Norm AI’s platform automates critical regulatory assessments, enabling companies such as insurance firms, investment companies, and other financial institutions to publish highly regulated content more efficiently. The platform uses a proprietary language to model government regulations and corporate policies as decision trees, which AI agents then process to conduct compliance analyses. This reduces the time compliance professionals need to evaluate regulatory content from days to minutes. By automating these tasks, Norm AI not only helps companies stay compliant but also frees up bandwidth for human professionals to focus on tasks that require more nuanced decision-making.

  • 6-2. 5.2 Expansion to Fortune 100 Companies

  • Norm AI aims to bring its regulatory compliance platform to more Fortune 100 companies. The company has already secured significant investments, including a $27 million Series A funding round led by Coatue, and an $11.1 million seed funding round led by Coatue Management LLC. These funds are intended to expand Norm AI’s software, AI, and legal engineering teams to better serve Fortune 100 companies. Norm AI’s platform targets the automation of semi-structured, repetitive regulatory tasks, improving the speed and accuracy of compliance across various sectors. This scalability and efficiency position Norm AI as a vital tool for large enterprises seeking to streamline their compliance processes.

7. Conclusion

  • Norm AI has established itself as a transformative force in the RegTech sector by employing AI to streamline regulatory compliance. The company's innovative platform, which turns complex regulations into actionable computer code using Regulatory AI Agents, delivers substantial efficiency and cost savings. Major investments from Coatue Management LLC and others have propelled Norm AI's growth and its ability to serve high-profile clients, including Fortune 100 companies. While the current AI capabilities show promising results in automating compliance tasks, the report acknowledges potential limitations and calls for further research to enhance AI autonomy and widen applicability across various sectors. These advancements position Norm AI not just as a compliance solution but as a pivotal tool for future regulatory landscapes, offering substantial practical benefits to businesses striving for regulatory adherence.

8. Glossary

  • 8-1. Norm AI [Company]

  • A New York-based company founded by John Nay, focusing on automating regulatory compliance using AI. Norm AI converts complex regulations into executable code, simplifying compliance processes for businesses, and has raised significant funding to support its innovation and expansion.

  • 8-2. John Nay [Person]

  • Founder of Norm AI, with a background in AI and law. His expertise is pivotal in leading the company's mission to revolutionize regulatory compliance through AI-driven solutions.

  • 8-3. Regulatory AI Agents [Technology]

  • Proprietary AI technology developed by Norm AI to automate compliance analyses by translating regulations into decision trees and executable programs, enhancing efficiency and accuracy in regulatory processes.

  • 8-4. Coatue Management LLC [Investor]

  • A key investor in Norm AI, leading both the seed and Series A funding rounds. Their financial support has been instrumental in Norm AI's platform development and strategic growth.

9. Source Documents