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Artificial Intelligence and Finance: FSB Warns that use of High-Speed Machine Trading Comes with Risk
The Financial Stability Board recently warned that a race among financial businesses to adopt AI may end up in a bad way. While AI has the potential for these businesses to cut their costs and also to allow them to trade and invest in ways that can drive new profits, the danger is that many financial businesses may rely on a small number of tech companies that are expert in the area of AI or limited set of algorithms that are judged to be most effective.
Similar software adopted across financial industries that automate decision making could lead to catastrophic results or exaggerated patterns of trading if the technology fails of if many businesses rapidly change their investment positions at the same time. Such actions could cause a ripple effect across the entire financial system.
The report by the FSB said that “AI and machine learning applications show substantial promise if their specific risks are properly managed. Taken as a group, universal banks’ vulnerability to systemic shocks may grow if they increasingly depend on similar algorithms or data streams.”