The successful infiltration of technology into every aspect of our personal lives has led pundits, over the last few years, to try and predict how technology will alter the landscape of our professional lives.
Whilst they did that, technology went about its business of revolutionising the workplace, nowhere more integrally than within financial services. The increasing use of artificial intelligence (AI) in the industry, and the speed with which it is being introduced, is fuelling a debate over how effective, beneficial and risky innovative tech can be for financial institutions.
In May Credit Suisse revealed they had 20 robots in their employ; they were described as working akin to Amazon’s Alexa voice service, and were tasked with ‘helping employees answer basic compliance questions’. The emergence of such AI has given regulators the task of identifying the benefits and risks of such technology for those working in the industry and for customers.
Regulators in some jurisdictions tackled AI early on. The UK’s Financial Conduct Authority (FCA) launched Project Innovate three years ago, saying that it is ‘an imperative that regulators are standing on the right side of progress’, referencing the evolution of AI in investment management firms like Nutmeg.
Other jurisdictions are only now beginning to address the AI challenge. On June 7, the Monetary Authority of Singapore (MAS) released a public consultation paper (PDF) on the ‘unique characteristics of and risks posed by digital advisory services’.
The Consultation outlined the two types of digital advisory tools:
- ‘Professional-facing tools’, used by those working in financial services to help their clients.
- ‘Client-facing tools’, used by clients directly and with an absence or limited presence of human interaction.
Robo-advice falls under the ‘client-facing tools’ category; the Credit Suisse bots come under the ‘professional-facing tools’ umbrella. As the Consultation acknowledges, the number of people using these digital tools is quickly growing in number, due to a healthy grasp of technology and the fact that such tools are inexpensive compared to a traditional, human-driven advice.
AI: the pros and cons
The pros and cons of AI’s use in financial services are touched upon in the Consultation. An obvious AI concern is the potential for technological glitches. As the Consultation states:
Client facing tools are primarily algorithm driven. A fault or bias in the algorithm, whether due to oversight or as a result of poor design, would adversely affect all the clients of the digital adviser.
There’s also the danger of these algorithms reinforcing conflicts of interest, which could occur ‘in situations where the algorithm of the client-facing tool is designed to favour or limit its recommendations to selected investment products for which the digital adviser or its affiliate would receive higher commission’. The MAS counteracts this by underlining the importance of extant disclosure rules.
Such concerns tie in with wider questions that AI’s increasing ubiquity raises. At the UN’s ‘AI for Good’ global summit, Audi Chairman Rupert Stadler told reporters that ‘we expect technology to always do the “right” thing, even when it would be virtually impossible for a human to achieve that’. Stadler’s pithy summary best captures the fundamental flaw of AI: expecting perfection from technology incapable of delivering it.
Countering this are the opportunities provided by AI. Take AI in wealth management: costs are reduced for the business and for the client by the arrival of AI in this area of financial services. The lower cost of investing for clients will provide opportunities for new people to invest. Additionally, AI’s implementation can contribute to a company’s organisational competency by, according to Forbes, ‘[helping] banks dramatically improve operational efficiency and gain a much clearer understanding of where they are going’.
Doubts, however, remain. Many compliance professionals are sceptical of suggestions that a robot could employ the type of nuanced reasoning required to formulate appropriate advice for clients. It’s too soon to tell whether AI will be primarily used in an advisory capacity for those working in financial services, such as how it is being used for compliance professionals, or whether it will flourish by missing out the employee all together. The key area of interest will be how regulators respond to the challenges posed by AI – however they respond, AI is here to stay.
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