ARCCS: An Automated Regulatory Compliance Checking System

Financial institutions must track over 60,000 regulatory events annually, overwhelming manual compliance teams; the industry has paid over USD 300 billion in fines and settlements since the 2008 financial crisis. We present ComplianceNLP, an end-to-end system that automatically monitors regulatory changes, extracts structured obligations, and identifies compliance gaps against institutional policies. The system integrates three components: (1) a knowledge-graph-augmented RAG pipeline grounding generations in a regulatory knowledge graph of 12,847 provisions across SEC, MiFID II, and Basel III; (2) multi-task obligation extraction combining NER, deontic classification, and cross-reference resolution over a shared LEGAL-BERT encoder; and (3) compliance gap analysis that maps obligations to internal policies with severity-aware scoring. On our benchmark, ComplianceNLP achieves 87.7 F1 on gap detection, outperforming GPT-4o+RAG by +3.5 F1, with 94.2% grounding accuracy ($r=0.83$ vs. human judgments) and 83.4 F1 under realistic end-to-end error propagation. Ablations show that knowledge-graph re-ranking contributes the largest marginal gain (+4.6 F1), confirming that structural regulatory knowledge is critical for cross-reference-heavy tasks. Domain-specific knowledge distillation (70B $\to$ 8B) combined with Medusa speculative decoding yields $2.8\times$ inference speedup; regulatory text's low entropy ($H=2.31$ bits vs. $3.87$ general text) produces 91.3% draft-token acceptance rates. In four months of parallel-run deployment processing 9,847 updates at a financial institution, the system achieved 96.0% estimated recall and 90.7% precision, with a $3.1\times$ sustained analyst efficiency gain. We report deployment lessons on trust calibration, GRC integration, and distributional shift monitoring for regulated-domain NLP.

Trust is fundamental in modern regulatory ecosystems, and compliance checking plays a critical role in fostering that trust. Regulatory compliance verification is essential for businesses operating in highly controlled environments, as it ensures alignment with sector-specific guidelines across domains such as financial reporting, data privacy, and cybersecurity. Manual compliance testing, however, is often time-intensive and prone to inconsistencies, particularly when compliance depends indirectly on third-party services such as cloud providers, where vendors rely on external providers to meet regulatory standards. In this paper, we present CTRAG, a novel Retrieval-Augmented Generation (RAG) pipeline designed for automated compliance checking. CTRAG employs advanced strategies, including adaptive chunking, dynamic retrieval configurations, and in-context learning, to improve the precision and relevance of compliance assessments. By extracting control questions from regulatory texts and cross-referencing them with unstructured company documentation, CTRAG achieves highly accurate, document-informed compliance verification, even in cases of indirect compliance through third-party services. Empirical evaluations demonstrate significant improvements, with CTRAG achieving an F1-score of 78% and a recall of 85% in the final deployed configuration, ensuring minimal missed non-compliance cases while reducing manual reviewer effort in a real-world deployment. To validate CTRAG value, we developed and deployed a POC within a Big Four professional services firm, applying it to real-world cases and cross-checking results against manual compliance reports. These findings highlight CTRAG potential to streamline compliance workflows, mitigate risks, and enhance regulatory trust in complex, high-stakes environments.

Large Language Models (LLMs) are increasingly adopted for compliance and legal reasoning tasks, yet their outputs often lack explicit grounding in legal logic and evidence. We present Code-as-Auditor, an LLM-based framework that extends the model's reasoning capability toward structured and evidence-grounded compliance assessment. The framework translates regulatory information into (1) formalized checklists and executable decision trees, encoding regulations and conditions as interpretable code structures. During inference, each checklist item is (2) dynamically expanded into factual and counterfactual questions, guiding the model to reason over case-specific evidence and potential violations. This process establishes a reasoning pipeline that proceeds from evidence identification, through rule application, to final decision-making, while a self-verification loop improves the logical consistency of the generated code and the traceability of outcomes. Experiments on privacy and data protection scenarios demonstrate that Code-as-Auditor delivers more accurate and evidence-backed evaluations, enabling automated compliance regulation checking grounded in explicit regulatory criteria.