AI matters | Financial services round-up (July 2024)

Some items to occupy you over the summer break:

AI Act and the financial sector: following the publication earlier this month of the EU's Artificial Intelligence Act (AI Act), financial supervisors are thinking through how the new legislation and its extensive governance and risk management framework for those who develop and use high-risk AI systems (see our summary) will apply to the financial sector. Here is the preliminary assessment of EIOPA, the European Insurance and Occupational Pensions Authority.

The ever-changing landscape of AI: AI lends itself to blog posts! This one published by UK Finance delves into considerations for financial services firms, including the good and bad of the AI revolution, contrasting AI's ability to detect fraud with the proliferation of “deepfakes” (on this see our post on Ofcom's call for immediate action on malificous deepfakes).

AI and the FSCS: much has been written about the potential for AI to perform tasks faster, better and at less cost. The Financial Services and Compensation Scheme (FSCS) (the scheme that, among other things, protects up to £85,000 in a UK bank account if the bank fails)) has published a technology update, in which it explains that it has been using machine learning and natural language processing to assist it with tracking down unauthorised introducers. By quickly identifying key information from documents such as PDFs and emails, the technology reduces how much time a claim handler spends to read through documentation manually which, in turn, helps to improve customer outcomes.

AI and the Gordian Knot: whether AI can solve all of life's challenges remains to be seen. However, Mr Klass Knot, Chair of the Financial Stability Board (FSB) and the President of the Netherlands Bank, has set out how he thinks AI may shape the economy and the financial system. He notes that while some of the potential risks of AI appear to be new, they are in fact rather similar to traditional financial risks, with which the FSB is already familiar. In his speech, delivered at the IMF's World Bank Constituency meeting in Moldova (hence a reference to the Moldovan wine industry and the role innovation and the use of drones has played in monitoring the health of vineyards!), Knot said that the FSB is updating its 2017 paper on the financial stability implications of AI, so look out for this later in the year.