Lawmakers Initiate Investigation into AI in Financial Services Sector - Should Automated Systems Be Subject to Regulation?
AI's role in the financial sector is under scrutiny as more firms embrace the technology. As per the latest Bank of England data, 75% of companies are already utilizing AI, and another 10% plan to within the next three years.
You might recognize AI when interacting with customer service lines or managing your investment or pension portfolio. However, the Treasury Committee has expressed concerns about the unpredictable and fast-changing nature of AI market, following incidents like the launch of DeepSeek, which shook up the Magnificent 7 last week.
The investigation aims to shed light on AI's current uses in financial services and the associated risks. The committee might explore AI's impact on financial stability, increased cyber security risks, and potential biases that can jeopardize consumers, especially the vulnerable ones.
As the UK government counts on AI to stimulate economic growth, Chair of the Treasury Committee, Dame Meg Hillier, emphasizes the necessity of safeguards to mitigate the associated risks while ensuring the city can continue as a world leader in finance. Submissions for this study will be accepted till March 17th, and with AI already in use across various financial products, it's already making its mark.
Embracing AI in Financial Services
The insurance sector leads in AI adoption, with 95% of firms currently using it, according to the Bank of England. Customers interacting with AI already includes phone calls to bank or insurer customer service lines or dealing with online chatbots.
AI also plays a role in spotting fraud, evaluating creditworthiness, and analyzing accounts and spending patterns to determine investment and savings potential. Nina Cherry, wealth consultant at Simplify Consulting, believes this is an opportune time for firms to share their AI usage insights, considering the various innovative applications.
Filling the Financial Advice Gap
AI supporters believe it could help bridge the advice gap, currently estimated at more than 12 million consumers. Holly Mackay, founder of Boring Money, suggests that AI can help reduce the advice gap by providing financial guidance to those who can't afford it. Mackay also points out that, while AI can help consumers filter choices and see personalized content, it still has limitations in handling complex or nuanced financial situations.
Potential Pitfalls of AI in Financial Services
AI tools may have flaws and can even mislead consumers, making it essential to trust them in moderation. AI-driven errors or biases can lead to financial losses. Joshua Gerstler, wealth manager at The Orchard Practice, believes AI can be beneficial, but people should not rely solely on it because AI lacks empathy and understanding of individual concerns and goals, unlike humans.
Daniel Wiltshire, an independent adviser at Wiltshire Wealth, advises against relying too heavily on AI, stating that empathy still plays a crucial role in maintaining consumer trust since financial decisions can significantly impact people's lives.
Mackay also cautions against over-regulating AI, suggesting that regulations might be challenging to update, maintain, and enforce, and could potentially be less effective than broader guidelines on consumer outcomes. Instead, she suggests focusing on evidence of good customer outcomes under the broader Consumer Duty umbrella to avoid drafting extensive AI-specific rules.
- As the insurance sector heavily adopts AI, it's crucial to examine the investments made in this technology, such as those invested in pensions or savings, to understand its true potential and associated risks.
- The proliferation of AI in financial services extends to property management, where AI can analyze account and spending patterns to predict potential investment opportunities.
- With AI expected to drive growth in the finance industry, it's essential to maintain the human aspect in decision-making processes, as technology, despite its advances, lacks the empathy and understanding needed to navigate complex and nuanced financial situations, thus highlighting the importance of continued human involvement in finance, particularly when it comes to pensions, savings, and property investing.
