Robots in finance bring new risks to stability, regulators warn
A study published by the Financial Stability Board (FSB), a panel of regulators that includes the U.S. Federal Reserve and European Central Bank, has revealed that the financial industry’s rush to adopt AI threatens to inject risks into the financial system and “amplify financial shocks”.
The FSB, headed by Bank of England Governor Mark Carney, said that many of the technologies are being designed and tested in a period of low volatility in financial markets, and, as a result, “may not suggest optimal actions in a significant economic downturn or in a financial crisis”.
Artificial intelligence is a branch of computer science that aims to imbue machines with aspects of reasoning. The term now includes machine learning, which is the ability for computers to learn by ingesting data, and natural language processing – the ability to read or produce text.
“AI and machine learning applications show substantial promise if their specific risks are properly managed,” the FSB said in its report, which called for additional monitoring and testing of robotic technologies designed to lessen human involvement. “Taken as a group, universal banks’ vulnerability to systemic shocks may grow if they increasingly depend on similar algorithms or data streams.”
The world’s biggest banks and hedge funds are embracing AI and machine learning to assess the credit quality of borrowers, price insurance contracts, automate interactions with clients and estimate the risk of trading positions, the FSB said. They are driven by the availability of major new sources of data that can be analyzed quickly with computer power and at the same time a desire to cut costs and employment levels.
Management consultant Opimas LLC estimated in March that AI would result in a cut of 230,000 workers at financial firms worldwide by 2025, with the hardest hit being 90,000 people in asset management.