Part of the Ghosts in the Machine b:INFORM Series

Ghosts in the Machine: Artificial Intelligence - Legal Risk

Ghosts in the Machine: Artificial Intelligence - Regulatory Risk

Welcome to our b:INFORM series exploring the rise of Artificial Intelligence ("AI") in financial markets and institutions.  This series is based on a survey undertaken by Baker & McKenzie and EuroMoney Institutional Investor Thought Leadership (together "we") between December 2015 and February 2016.

What is the survey about?

The use of AI is on the rise in the financial and various other sectors.  In very simple terms, the term AI refers to intelligence exhibited by machine or software.  AI is also an umbrella term encompassing several fields of research in computer science, all of which seek to enable computer systems to perform tasks that traditionally require human intelligence, such as visual perception and decision-making.

One branch of AI that the survey focuses on is "machine learning". Machine learning provides computer systems with the ability to learn and adapt independently, based on algorithms and the analysis of data.  Machine learning is increasingly deployed in several areas of the financial industry, most prominently in trading and financial research, but also in other areas such as investment advisory.

In this survey, we asked 424 senior executives from financial institutions and FinTech companies around the world as well as seven leading experts in the field for their view on how AI will affect the financial sector, what risks and benefits AI will bring to the sector, what the associated regulatory and legal challenges will be and many more questions.

What does the survey tell us?

The survey results provide very useful insights about the future of the financial sector.  Key findings include that:

  • The most dramatic changes brought about by AI and machine learning are expected to be felt in the areas of trading, financial analysis and IT. Other areas that will likely be significantly affected are risk assessment, credit assessment and investment portfolio management.
  • On the positive side, AI is predicted to improve financial institutions' risk management, e.g., through more in-depth assessment of risk in portfolios and more incisive, comprehensive and informed credit-risk assessment.  Further, machine learning is predicted to have a positive effect on competitiveness in financial markets.
  • On the flipside, the use of AI in the financial sector is said to bring about significant uncertainties and risks, such as the risk of malfunctioning algorithms, humans' misuse of technology and concerns surrounding the security, privacy and quality of data.  Survey respondents have also expressed great unease about the future regulatory response to AI as many doubt that regulators have the adequate knowledge and skills to stay abreast of new financial technologies and understand the potential implications of AI for financial markets.
  • Survey respondents are also doubtful that organisations fully understand the legal risks associated with  new financial technologies.  Such risks include, for example, corporate liability as well as data protection and privacy risk.

We will explore these and other findings in this series.  So, please return to b:INFORM in the next few days for more.  You may also want to subscribe to our b:INFORM newsletter to receive updates about newly posted b:INFORM content straight into your inbox. Finally, you are welcome to visit our Ghosts in the Machine website or download a pdf copy of the survey report.  We also invite you to visit our FinTech website.