Report outlines risks and benefits of AI for financial institutions

The Financial Stability Board (FSB), an international institution that makes recommendations concerning the global financial system, released a report exploring the financial stability implications of artificial intelligence (AI) and machine learning in finance. The report looks at possible benefits and risks that AI and machine learning could bring in the area of financial stability. Some of the main findings include: regulator and supervisors could make use of these technologies to improve regulatory compliance and increase supervisory effectiveness; AI applications could lead to new forms of interconnectedness between financial markets and institutions; network effects and scalability of new technologies could lead to the emergence of new important players that could fall outside the regulatory framework; the lack of auditability of AI  methods could become a macro-level risk. The report also notes the importance of assessing uses of AI and machine learning in view of their risks, in areas such as data privacy and cybersecurity. ‘Adequate testing and ‘training’ of tools with unbiased data and feedback mechanisms is important to ensure applications do what they are intended to do’.