Joel Muckett 2 Nov 2017 02:33pm

AI a threat to financial stability, warns FSB

Adoption of artificial intelligence (AI) and machine learning could threaten financial stability

Adoption of artificial intelligence (AI) and machine learning could threaten financial stability.

A report by the Financial Stability Board (FSB) into the ratification of technology in the finance industry stressed that the use of AI carried significant risks, despite potential upsides.

It suggested current providers of AI and machine learning technology could “fall outside the regulator perimeter or may not be familiar with applicable law and regulation” if they are not subjected to supervision.

Large technology firms could become “systemically important players” in the industry through dependence on third parties, which it said could result in “natural monopolies or oligopolies”.

“These competition issues…could be translated into financial stability risks if and when such technology firms have a large market share in specific financial market segments,” the FSB said.

“Moreover, advanced optimisation techniques and predictable patterns in the behaviour of automated trading strategies could be used by insiders or by cybercriminals to manipulate market prices,” the report said.

Despite the risks, there were also benefits associated with the use of these technologies, including an improvement in the efficiency of financial services.

“The use of AI and machine learning in financial services may bring key benefits for financial stability in the form of efficiencies in the provision of financial services and regulatory and systemic risk surveillance,” said the FSB.

Application of AI and machine learning could lead to more efficiency when processing information and also help regulatory compliance and supervisory effectiveness.

Last month, the Confederation of British Industry called for the government to form a joint commission for artificial intelligence, which would examine how jobs would be impacted by its implementation.