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AI is transforming financial services in fundamental ways and has many potential benefits, both in terms of efficiency and new capabilities. But there is nothing magical about it – and anyone who expects magic will be disappointed. In coming years, it will be increasingly common for financial practitioners to work alongside AI technologies. It is crucial that they – and particularly decision-makers – are able to critically evaluate these technologies. Increased reliance on AI will have consequences for consumers, institutions and the stability of the financial system, for better or worse.
Outcomes ultimately depend upon humans, not machines. A decade after the global financial crisis, the world is still grappling with the ramifications of the industry’s embrace of complex financial instruments. Any comparisons to be made with the impact of AI are speculative, but the parallels should not be dismissed out of hand. This report has two objectives:
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A word from our publisher: The Centre for the Study of Financial Innovation
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“We hear a great deal about the opportunities opened up by AI and ML – and no one (sane) doubts their potential. But there is another side to the discussion, and it is one that is just as important. AI and ML are difficult – complex, opaque, hard for non-specialists to grasp. They may also lend themselves to anti-competitive market concentration – and they will certainly throw up a range of new challenges for incumbent and regulators. This report focusses on the skills gap, on ethical issues that are raised, on consumer protection and on systematic threats. It pulls together what I believe is the first comprehensive review of the problems that AI and ML may pose – while not ignoring the very considerable potential upside. It is a timely counterpoint to much of the AI boosterism about which we read so much.” - Andrew Hilton, director of the CSFI
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Digitisation has the potential to redefine the relationship between consumers and financial institutions. It is critical for the industry to identify not only the benefits associated with the use of Big Data and AI but above all the potential risks of these new technologies.
In this context, the CSFI report is making an important contribution in introducing a framework which defines the main risk drivers (i.e. opacity and complexity, distancing of humans from decision making and changing incentive structures) and the key risks (i.e. new ethical challenges, skills gap and market dynamics) that might arise from the increasing use of AI in financial services. Finally, the report explores the consequences that an increased reliance on AI might have for consumers, institutions and the stability of the financial system. - Torben Thomsen Chief Risk Officer for Reinsurance, Swiss Re |
Keyur Patel and Marshall Lincoln provide a very clear introduction to the core concepts of AI, as it relates to financial services, and explore its benefits for the industry. They then provide a clear and balanced consideration of the potential risks that it brings.
The result is a thorough and balanced review of the opportunities and risks that face us as we start to apply AI technology in financial services. I believe that it will act as a useful primer for those not yet familiar with technology. It will also generate thought-provoking discussion for those who are currently engaged in identifying the opportunities, understanding the risks and ultimately trying to deliver the benefits of this sophisticated technology in one of the world’s most fast-moving and important industries - Eoin Woods Chief Technology Officer, Endava |