AI in investment management
Current and future use cases of AI in investment management are the subject of the third and final report of the Technology Working Group (TWG) published by the Investment Association on 10 October 2024.
The TWG was convened by the Asset Management Taskforce to bring together leaders within the investment management sector to consider the benefits of technology to investors and industry.
The report is the product of close collaboration between industry, the FCA and HM Treasury.
Key findings include:
- Regulation is not currently seen as a barrier to innovation although it is recognised that the possibility of future regulatory intervention may causing concern.
- The majority of UK-based firms will be impacted by the EU AI Act on account of their distribution strategy, fund domicile or location of their physical office. To ensure the UK investment management industry, the TWG calls for international regulatory alignment where practical.
- The TWG advocates leveraging existing rules as far as possible, reinforcing them as necessary with sector-level regulatory guidance.
- While the TWG supports plans to introduce legislation for frontier models, it highlights the risk of legislation and regulation that becomes redundant or hinders innovation.
- The TWG supports the work of the Bank of England's Financial Policy Committee, in its role in identifying potential systemic risks relating to AI and highlights as a positive development the incoming critical third parties regime.
- Closer cooperation and coordination between different UK regulators is encouraged. This includes initiatives such as the Digital Regulation Cooperation Forum.
- The industry should continue to develop its approach to understanding AI risk and governance. The report notes that the IA expects to produce guidance on AI risk and governance and that it will use its IA Talks AI podcast series and other communications to promote wider activity.
The report closes with an appendix containing five case studies of initial AI use within investment firms and an appendix setting out internal AI risk management and other considerations.
The AI Lab
On 17 October 2024, the FCA launched a new AI Lab that adds an AI dimension to its existing range of Innovation services. The AI Lab was announced at a special event to mark the 10th anniversary of the inception of Project Innovate.
The FCA has said that it wants to “enable the safe and responsible use of AI in UK financial markets, driving growth, competitiveness and innovation in the sector.”
To this end, the AI Lab will deepen the FCA's understanding of the risks and opportunities that AI presents to UK consumers and markets and help to inform its regulatory approach in a practical, collaborative way.
The first components of the AI Lab are:
A little more conversation: banking and conversational AI
Much focus has been given to how GenAI can transform the financial services sector, whether through assisting with huge compliance exercises, predicting regulatory changes or building better tailed products.
As this UK Finance blog post discusses, alongside Gen AI, conversational AI, best demonstrated in the chatbot, has the potential to significantly change how banks engage and interact with their customers. According to the author of the post, a Swedish bank implemented a virtual agent that responded to more than two million inquiries, giving tailored responses across a range of business units to maximise productivity.
Before you ask, “What could possibly go wrong?”, the author of the blog is keen to stress that for the full potential of such technology to be realised, the ethical and regulatory considerations that arise from its use will need to be carefully negotiated (including the challenges of ensuring accountability and fairness and avoiding algorithmic bias).
