AI technologies are presenting firms with a wide range of new opportunities, both in terms of cost- and risk-reduction as well as in revenue generation. Firms may need to embrace these types of opportunities in order to remain competitive. However, these technologies also give rise to considerable new challenges, which warrant careful consideration at a board level. In particular:
Depending on the precise area of deployment, the consequences of a financial firm’s AI system going awry could potentially be catastrophic. Imagine, for example, widespread consumer discrimination, engagement in market abuse or a failure to meet regulatory capital requirements. The risks of failures arising through the use of AI are heightened by the novel features of the technology (as discussed above), which can often result in relevant issues going undetected.
Regulatory frameworks are continuing to evolve in response to the novel features of machine learning discussed above and as AI technologies continue to develop. Approaches to regulation differ across different regions. In addition, there are various soft law standards to consider. We discuss this further in Chapter 2.
In most jurisdictions, existing financial regulation already imposes high standards in relation to issues such as governance, risk-management and control and outsourcing. The novel features of AI applications can test the adequacy of existing systems and processes in meeting these types of compliance requirements. In some cases, the use of AI may simply be incompatible with existing regulatory requirements. We discuss this further in Chapter 3.
In many jurisdictions, senior managers will have individual regulatory responsibilities if AI is deployed within the scope of their responsibilities. This may arise even if they are unaware of the deployment. It is therefore incumbent on senior managers to be proactive in managing these types of risks. We discuss this further in Chapter 3.
Depending on the application, various cross-sectoral laws and regulations will come into play. We consider issues relating to data protection law in Chapter 4 and competition law in Chapter 5.
There are fundamental legal questions to consider as to who will be liable if and when things go wrong, as we explore in Chapter 6.
Artificial intelligence is moving into the mainstream and raises a number of practical, legal and ethical challenges. If you are looking to exploit this technology you need to address these issues, many of which are new and need new responses.
All financial services firms and marketinfrastructure providers should be able toprevent, respond to and recover from businessdisruption. This operational resilience is thesubject of a discussion paper published by the UK financial services supervisors.
There is great interest in financial services – as in other industries – in the promise of AI to unlock new opportunities for innovation, increased efficiency, and improved services for customers. This promise is fast becoming reality, with growing adoption of AI by financial institutions across Asia.
In our Regulating the Digital Economy Series we considered the new wave of regulation and enforcement in the digital economy, exploring key developments and sharing how businesses can prepare to navigate a complex web of regulation across the globe. Over the course of four webinars we covered global trends, payments, digital advertising and online harms.
