Governments, financial regulators and businesses should step up their efforts to address the challenges of developing and deploying trustworthy artificial intelligence in the financial sector, the Organisation for Economic Co-operation and Development said.
AI, which is a set of applications including machine learning and robotics, holds “tremendous potential to improve productivity and innovation” in the financial sector.
However, its extensive adoption in the industry requires the right infrastructure that includes access to sufficient computational capacity and economical high-speed internet services, the Paris-based organisation said in its “Business and Finance Outlook 2021" report.
“AI can create new risks or reinforce existing risks,” the report said.
“The myriad uses of AI call for balanced policy approaches that can support AI development and adoption while mitigating risks.”
Some of the risks associated with AI include “entrenching bias, lack of explainability of financial decisions, introducing new forms of cyber attacks and automating jobs ahead of society adjusting to the changes”.
It also raises challenges related to “privacy, autonomy, transparency and accountability”, which are particularly complex in the financial sector, said the report.
It added that complex AI algorithms that are difficult or even impossible to explain could “amplify existing risks in financial markets or give rise to new risks".
Over the past few years, AI adoption in finance has grown substantially, enabled by the abundance of available data and the increase in the lower cost of computing capacity.
The financial and insurance sector is among the top 10 industries in terms of the amount of venture capital investments in AI start-ups, investing over $4 billion globally last year, OECD data showed. Almost 65 per cent of the VC investments in the sector went to American AI start-ups.
Overall, investors poured money into AI-focused companies at a historic rate during the Covid-19 pandemic, a study by Stanford University showed.
Total global AI investment, including private investment, public offerings, mergers and acquisitions and minority stakes, increased by 40 per cent last year for a total of $67.9bn, compared with a 12 per cent jump from 2018 to 2019.
In the financial sector, AI has the potential to improve customer experiences, identify investment opportunities, grant more credit at better conditions, enable transactions, enhance market efficiency, reinforce financial stability and promote greater financial inclusion.
“As AI applications become increasingly integrated into business and finance, the use of trustworthy AI will become increasingly important for ensuring trustworthy financial markets,” the OECD report said.
Trusted and explainable AI is also crucial to widespread adoption of the technology and the success of businesses.
A recent survey by IBM showed that the vast majority of businesses believe the ability to explain how their AI arrived at a decision was important. More than three quarters of those surveyed said that trusting AI output was fair, safe and reliable.
“Existing financial regulations may fall short of addressing systemic risks presented by wide-scale adoption of AI-based FinTech by financial firms,” OECD said.
“AI uptake in a highly regulated sector such as finance could benefit from a policy environment that is flexible enough to keep up with technological and business model developments and promote innovation, yet remains safe and provides legal certainty,” it added.
The OECD Principles, adopted globally in May 2019, became the first international standard agreed upon by governments for the responsible stewardship of trustworthy AI.
In April, the EU proposed AI regulation that requires developers and users to abide by certain data management rules, record-keeping and transparency. However, the proposal is a direct challenge to a commonly held view in Silicon Valley that laws should not interfere with emerging technology.
The AI market is booming as governments invest in technology to drive efficiency and cost savings.
The UAE, the Arab world's second-largest economy, is projected to benefit the most in the Middle East from AI adoption. The technology is expected to contribute up to 14 per cent to the country’s gross domestic product — equivalent to $97.9bn — by 2030, a report by consultancy PwC showed.