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Transforming Regulatory Compliance with AI: The Case of Norm Ai

GOOVER DAILY REPORT July 28, 2024
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TABLE OF CONTENTS

  1. Summary
  2. Introduction to Norm Ai
  3. Innovations in Regulatory Compliance
  4. Funding and Financial Backing
  5. Collaborations and Expert Consultations
  6. Current Impact on Regulatory Compliance
  7. Conclusion

1. Summary

  • The report delves into the advancements introduced by Norm Ai—a company spearheading the use of artificial intelligence to simplify regulatory compliance. It details Norm Ai's founding, led by John Nay, and closely examines the company’s mission to automate complex regulatory tasks, thereby reducing costs and enhancing efficiency without compromising on regulatory adherence. Key highlights include the introduction of Regulatory AI Agents, the conversion of regulations into executable code, and the company’s robust financial backing, such as the $27 million Series A funding led by Coatue. The report also discusses collaborative efforts, with partners like OpenAI and a regulatory advisory board featuring industry experts, ensuring that Norm Ai’s solutions remain aligned with the latest regulatory standards and practices. The analysis underscores the impact of these innovations on compliance accuracy, reduction of human intervention, and overall efficiency improvements for compliance officers.

2. Introduction to Norm Ai

  • 2-1. Company background and mission

  • Norm Ai, founded by John Nay in 2023, focuses on leveraging artificial intelligence to streamline regulatory compliance. The company aims to address what Nay refers to as the 'sludge problem' in regulatory compliance, which stems from the increasing complexity of regulations over the past 50 years. Norm Ai's mission is to automate the parts of regulatory compliance that can be codified, thereby reducing costs and improving efficiency without compromising adherence to societal values embedded in public law.

  • 2-2. Leadership and foundational overview

  • John Nay, the founder and CEO of Norm Ai, brings a unique blend of expertise in AI and legal systems. Nay has an extensive background in teaching and researching generative AI applied to legal concepts, with academic stints at NYU, Stanford Law School, and Vanderbilt. He has authored the LegalBench benchmark and founded Brooklyn Investment Group. The core team includes COO Patrick Vergara, who has a law degree from Stanford and product leadership experience from Alkymi. The engineering team features professionals from Google, Meta, and various reputable institutions. Norm Ai has successfully raised significant funding, including a $27 million Series A round and an $11.1 million seed funding round, backed by prominent investors like Coatue Management, M13 Ventures, and Blackstone.

3. Innovations in Regulatory Compliance

  • 3-1. AI-driven regulatory compliance automation

  • In the past fifty years, the complexity and number of regulatory restrictions in the US have more than doubled, posing increasing challenges and costs for businesses attempting to keep up with compliance demands. John Nay, the founder and CEO of Norm Ai, identified this issue as a “sludge problem,” where the overwhelming burden of compliance slows down business processes and increases risks. To address this, Norm Ai created an AI platform that automates many of the semi-structured, repetitive tasks involved in regulatory compliance. This technology allows companies to avoid spending excessively on third-party services without sacrificing adherence to regulations. Norm Ai's generative AI tools can perform robust compliance analyses in a fraction of the time it would take humans, freeing up resources for more strategic work.

  • 3-2. Conversion of regulations into executable code

  • Norm Ai has developed a proprietary language that translates government regulations and corporate policies into decision trees, which are then converted into executable computer programs. Termed as Regulatory AI Agents, these programmed modules can efficiently conduct compliance tasks autonomously. By engaging with Norm’s software, compliance officers upload relevant documents, which the AI then scans and processes against the applicable regulatory requirements. This automation not only ensures a much faster compliance review but also maintains accuracy, allowing companies to stay up to date with evolving regulations. For instance, the AI can substantiate claims by locating and documenting necessary evidence, significantly reducing the workload on human compliance teams.

  • 3-3. Role of Regulatory AI Agents

  • Regulatory AI Agents are at the heart of Norm Ai's innovation. These AI-driven agents operate by analyzing regulations encoded as decision trees—an approach that lets them handle complex compliance tasks autonomously. When significant claims are made, the agents automatically find and maintain records to support those claims, making it simpler for businesses to reduce risks. Additionally, these agents continually adapt to regulatory changes, updating their decision graphs as new rules and amendments are introduced. This ensures that compliance assessments remain current and accurate, helping organizations maintain compliance proactively. The platform also facilitates collaboration among team members, enabling them to communicate, share insights, and keep a historical record of compliance decisions within the system, thus streamlining the entire compliance workflow.

4. Funding and Financial Backing

  • 4-1. Recent Series A Funding

  • Norm Ai, a company based in New York, raised $27 million in Series A funding. This funding round took place in June 2024 and was led by Coatue. Other participants included Bain Capital Ventures, Blackstone Innovations Investments, New York Life Ventures, Citi Ventures, TIAA Ventures, and Jefferson River Capital. The funds are intended to expand Norm Ai’s platform and grow its client base.

  • 4-2. Total Capital Raised

  • Over the last 11 months, Norm Ai has successfully raised more than $38 million. This cumulative funding supports the company's growth and recruitment across various sectors, including software engineering, AI engineering, legal engineering, and sales.

  • 4-3. Key Investors and Their Significance

  • The lead investor in Norm Ai’s Series A funding round is Coatue, a private equity firm founded in 1999 that invests in technology, media, financial technology, climate technology, and telecommunications sectors. Other notable investors include Bain Capital Ventures, Blackstone Innovations Investments, New York Life Ventures, Citi Ventures, TIAA Ventures, and Jefferson River Capital, the family office of Tony James. These investors bring significant financial backing and strategic support to Norm Ai, fostering the company's mission to streamline regulatory compliance through advanced AI solutions.

5. Collaborations and Expert Consultations

  • 5-1. Partnerships with Large Language Model Providers

  • Norm Ai collaborates with multiple large language model providers to enhance its artificial intelligence platform. One notable partner is OpenAI, an industry leader. These collaborations enable Norm Ai to efficiently process and distill complex regulatory documents into manageable units, facilitating compliance determinations.

  • 5-2. Industry Expert Advisories

  • Norm Ai has established a regulatory advisory board to guide its compliance initiatives. The advisory board includes several prominent figures: Katherine 'Kate' Karas, the former top lawyer at financial technology startup Chime Financial Inc.; former SEC commissioner Troy Paredes; Coatue's compliance chief and deputy general counsel Vanessa De Simone; and ex-White House official and regulatory expert Susan Dudley. This board provides critical insights to ensure the company's AI solutions align with current regulatory standards and practices.

  • 5-3. Strategic Collaborations

  • Norm Ai has engaged in strategic collaborations to bolster its capabilities in regulatory compliance. The company is being advised by Fenwick & West, a law firm known for its support of startups. Additionally, Norm Ai has received backing from notable investors, including Coatue Management LLC, M13 Ventures Management LLC, and prominent entrepreneurs Courtney and Carter Reum.

6. Current Impact on Regulatory Compliance

  • 6-1. Enhanced accuracy in compliance assessments

  • According to John Nay, founder and CEO of Norm AI, one of the biggest challenges in compliance is the 'sludge problem' where regulatory compliance costs grow increasingly complex and unpredictable. With the U.S. regulations doubling in restrictions over the past 50 years, many companies struggle to comply without hindrance. Norm AI addresses this by leveraging AI agents to automate semi-structured, repetitive tasks in regulatory compliance. Through the use of language models and legal concepts, Norm AI performs robust compliance analyses by converting regulations into executable codes that generate accurate assessments.

  • 6-2. Reduction in human intervention

  • Norm AI's platform drastically reduces the need for human intervention in regulatory compliance tasks. Compliance and business users can upload artifacts for review, and Norm autonomously produces findings by executing specific regulatory modules. For instance, by tracking evidence for significant claims, teams can reduce risk and stay updated with regulatory changes without constant human oversight. This automated process allows businesses to publish regulation-compliant content swiftly, freeing up bandwidth for other critical tasks.

  • 6-3. Efficiency improvements for compliance officers

  • With its AI-driven platform, Norm AI enhances efficiency for compliance officers by enabling quicker and more thorough analyses of regulatory documents. The platform transforms lengthy documents, such as 600-page PDFs, into actionable decision trees that facilitate compliance task execution. This system of record permits streamlined collaboration among compliance teams, reducing reliance on emails and centralizing conversations. Users can self-serve compliance, accelerating business operations while maintaining adherence to regulations.

7. Conclusion

  • Norm Ai exemplifies the transformative potential of artificial intelligence in the realm of regulatory compliance, significantly easing the burden on businesses and compliance officers through automated, precise assessments. The company's substantial financial backing, highlighted by the $27 million Series A funding led by Coatue, along with strategic partnerships with entities like OpenAI, positions Norm Ai favorably for future growth and impact in the RegTech landscape. John Nay's leadership has been pivotal in attracting investment and advisory support from notable industry figures, further reinforcing Norm Ai's mission to revolutionize compliance practices. While the report outlines the current state and implications of Norm Ai’s advancements, it also emphasizes the ongoing and future significance of AI in maintaining and improving regulatory compliance. Future investigations should focus on broader industry impacts, potential technological evolutions, and further refining AI applications in regulatory contexts, ensuring the technology continually adapts to the ever-changing landscape of compliance requirements.

8. Glossary

  • 8-1. Norm Ai [Company]

  • Norm Ai is a RegTech company founded by John Nay. It focuses on automating regulatory compliance through AI, offering solutions that transform regulations into executable code and reduce the need for human intervention in compliance workflows.

  • 8-2. John Nay [Person]

  • John Nay is the founder and CEO of Norm Ai. He steers the company with a vision to revolutionize regulatory compliance using AI. His leadership has attracted significant investment and advisory support from industry experts.

  • 8-3. Regulatory AI Agents [Technology]

  • A proprietary language developed by Norm Ai to convert regulations into executable computer programs. These agents automate compliance tasks, findings, and analyses, enhancing speed and accuracy.

  • 8-4. Coatue [Company]

  • A private equity firm that led Norm Ai's $27 million Series A funding round. Coatue invests in various sectors including technology, media, fintech, climate tech, and telecommunications.

9. Source Documents