Robots in finance bring new risks to financial system stability, regulators warn
BANKS and hedge funds that rely on artificial intelligence threaten to inject risks into the financial system that could exacerbate a future crisis, according to global regulators.
The financial industry’s rush to adopt AI raises the potential that firms will become overly dependent on technologies that herd them toward the same view of risks and could “amplify financial shocks,” according to a study published last Wednesday by the Financial Stability Board, a panel of regulators that includes the Federal Reserve and European Central Bank.
“AI and machine learning applications show substantial promise if their specific risks are properly managed,” the FSB said in a report that 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 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.
The world’s biggest banks and hedge funds are embracing the tools, driven by the availability of major new sources of data that can be analysed quickly with computer power and at the same time a desire to cut costs and employment levels. Management consultant Opimas 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. — WP-Bloomberg