Miquel Noguer i Alonso and Foteini Samara Chatzianastasiou from The Artificial Intelligence in Finance Institute [Which seems to be an entity of their own creation] take us through the how, why and to what extent AI is being considered by the world’s regulatory authorities in regard to finance.
The paper focuses on three main areas, the U.S., Europe and China and notes the challenge is the same everywhere i.e. how to manage the promotion of innovation at the same time as protecting the consumer.
Europe appears to be in the lead with their AI Act but the U.S. is close behind with their AI Bill of Rights and China, although lacking to date a comprehensive response, is believed to be incubating omnibus legislation similar to the European model.
This is a nebulous subject and I’ve struggled with a summary but here are what most are talking about when they say ‘AI’:
Machine Learning (ML), Natural Language Processing (NLP), Predictive Analytics and Large Language Models (LLMs)
..and these are the applications regulators and users are most involved with when it comes to finance:
Algorithmic Trading, Credit Scoring, Fraud Detection, Robo-Advisors, Risk-Management and Automation.
From the above it’s clear this subject is a patchwork of themes, influences and applications. Unsurprising then that more regulation hasn’t been promulgated by governments so far.
The rest of the paper is a look in more detail at developments in the various locales that may be of interest to practitioners. The merely curious should skip to the P.22 ‘Conclusion’ for a more comprehensible summary.
I finished the read encouraged. First, by the sense that regulators the world over are on top of the issues and second, that institutions are seemingly prepared to work closely with peers and their governments to promote the trust, efficacy and utility of these new technologies.
You can review the article in full here The Case for Artificial Intelligence Regulation in the Financial Industry.
Happy Sunday.