AI is rapidly transforming the global financial services industry with its major analytical power. But AI’s disruptive nature also presents a great deal of uncertainty and many risks still to be addressed, including legal, ethical, economic and social. A new landscaping report, Artificial intelligence in finance, commissioned and published today by The Alan Turing Institute explores these topics and asks: is AI so different from previous advancements that it could upend the laws of finance?
Many AI techniques remain untested in financial crisis scenarios. There have been several instances in which the algorithms implemented by financial firms appeared to act in ways quite unforeseen by their developers, leading to errors and flash crashes (notably the pound's flash crash following the Brexit referendum in 2016). This wave of AI innovation is boosting growth in the emerging Fintech market, which is transforming traditional finance through things like cryptocurrencies, blockchain, robo-advising, smart contracts, crowdfunding, mobile payments and AI platforms. Fintech offers opportunities and challenges: in terms of financial inclusion, the increased application of AI to capital markets is likely to reduce barriers to entry for many individuals who might not have previously had access to financial markets.
The new report, authored by Bonnie Buchanan, Howard Bosanko Professor of Economics and Finance at Seattle University, details four specific areas in which AI is changing the financial services industry:
- Fraud detection: As e-commerce has become more widespread, online fraud has also increased. This practice uses AI to keep criminal funds out of the financial system.
- Banking chatbots and robo-advisors: These can improve the banking industry, including helping users manage their money and savings, but must be built with robust natural language processing engines as well as reams of finance-specific customer interactions.
- Algorithmic trading: The use of complex AI systems to make extremely fast trading decisions. This practice has many sceptics, with traditional traders being dubious about the lack of transparency and “black box” nature of AI algorithms.
- Regulation and policy: As AI becomes more sophisticated and complex, so do the financial markets—this presents major challenges in regard to regulation and policy-making.
“This report lays out the basic principles and key trends in the world of AI in finance and this is an important step in improving literacy. At the Turing, we are excited to be collaborating with a variety of stakeholders to promote responsible adoption of AI in the financial industry. We’re working to develop ethical and efficient tools for data-driven decision-making in order to improve the resilience and stability of the financial system.”
- Lukasz Szpruch, director of the finance and economics programme, The Alan Turing Institute
Anyone wishing to quote our landscaping report should credit The Alan Turing Institute. During this week, the Turing will be publishing a short AI in finance guest blog series on the Turing blog exploring different angles such as trust in chatbots and robo-advisors and the questions we should be asking about the use of AI in the financial industry.
Notes to Editors:
1. The Alan Turing Institute’s finance and economics programme has recently launched a special interest group for machine learning in finance, under the leadership of our visiting researchers Blanka Horvarth and Antoine Jacquier.
2. There are currently two other active special interest groups within the programme: Behavioural data science, under the leadership of Professor Ganna Pogrebna and Sustainable finance, under the leadership of Dr Ben Caldecott. Our special interest groups are aimed at fostering the dialogue around the most pressing challenges in the field of finance and economics, and bringing together a diverse group of experts in data science, machine learning, finance and the social sciences from both academia and industry.
3. Email programme manager Anastasia Shteyn ([email protected]) to find out more and get involved.