The Financial Stability Board published a report that considers the financial stability implications of the growing use of artificial intelligence (AI) and machine learning in financial services.
Financial institutions are increasingly using AI and machine learning in a range of applications across the financial system including to assess credit quality, to price and market insurance contracts and to automate client interactions. Institutions are optimising scarce capital with AI and machine learning techniques, as well as back-testing models and analyzing the market impact of trading large positions.
Meanwhile, hedge funds, broker-dealers, and other firms are using it to find signals for higher uncorrelated returns and to optimise trade execution. Both public and private sector institutions may use these technologies for regulatory compliance, surveillance, data quality assessment and fraud detection.
The FSB’s analysis reveals a number of potential benefits and risks for financial stability that should be monitored as the technology is adopted in the coming years and as more data becomes available. They are: