The International Monetary Fund (IMF) recently published a report on artificial intelligence (AI) and its use-cases across the entire financial services industry. The report, entitled "Powering the Digital Economy", focuses on the application of AI in the financial sector. It explains how such systems work, where they're being used, and what new issues they pose.
The report notes that AI "systems can perform quite well tasks that are well defined and normally require human intelligence." It also says the technology is playing a significant role in transforming finance overall, including central banks. This article outlines the most notable findings of the report.
What role does fintech play in the AI revolution?
Fintech is leading the charge: "The financial sector, led by financial technology (fintech) companies, has been rapidly increasing the use of AI/ML systems.", notes the study.
The disruption from fintech firms is due in large part to AI technologies like machine learning (ML) which help make banking easier for clients while cutting down costs at the same time.
With the growth of the digital economy and the increasing number of fintech breakthroughs such as big data and cloud computing, it is now feasible to deploy effective AI processes.
Competition from fintech companies was already high in the banking industry, but now it's making headway.
Financial technology firms have created a number of new products and services that are designed to make lending more accessible for everyone in an increasingly digital world - even those without any credit history or assets at all.
Central banks across the world already use fintech solutions, especially AI
The Bank of England (BoE) revealed during the FinTech & InsurTech Live event that it presently employs artificial intelligence for forecasting and obtaining real-time insights. It has also created chatbots and a cognitive search engine.
According to the IMF report, thirteen other jurisdictions also have active AI applications being used at their central banks. Some of their use-cases include predictions using numerous data sources, fraud detection, and loan portfolio analysis.
Other central bank applications include checking board meetings to ensure compliance is maintained, assessing risks, looking for emerging trends, making credit judgements, and automatically correcting errors in data sets.
The IMF has predicted an impending shift towards AI, which they expect will have far-reaching consequences. They think AI could "equip central banks with new tools to pursue their monetary and macroprudential mandates."
AI technology may also be used by central banks in financial markets and economic forecasting, enhancing monetary policies like inflation targeting or liquidity provisioning, and monitoring risks before they become systemic problems.
The challenges with AI adoption in finance
The IMF indicates that AI applications "will continue to accelerate" and noted that there are still concerns about whether these technologies are being used ethically enough.
The threats associated with AI were outlined exhaustively, including the risks around bias, cybersecurity, misinformation, privacy, accountability, and their influence on financial stability.
Several questions remain unanswered, including how much data is safe to share with AI systems? How do people make sure they can't be hacked or manipulated by bad actors? And what happens if an error occurs - who will take responsibility for it?
The report suggests that it might be necessary to create a new framework for AI systems, one which is designed specifically with financial services in mind.
"Addressing these challenges requires broad regulatory and collaborative efforts", states the document. "An adequate policy response requires developing clear minimum standards and guidelines for the sector."
Despite all this uncertainty surrounding AI technology, experts agree on one thing: This technology might help create a better future overall. The only question then becomes; exactly how advanced should regulation get regarding the fintech industry before AI applications scale at large?