As the Bank of England builds out a platform for fintech innovation, it considers how general purpose technologies, including advanced analytics such as AI, can increase the resilience of the financial system, said Mark Carney, Bank of England governor in a speech.
“As much of life moves online, a trail of data is created. Indeed, more data was created in the past two years than in all the years that came before. And this data is creating enormous opportunities for the new finance to serve customers better and to manage risks more effectively. To those ends, the financial sector is investing heavily in the cloud, machine learning and AI. Banking is already the second biggest global spender on AI systems (after retail) and is expected to invest a further $10 billion on AI by 2020.
He added that AI-enabled solutions are increasingly important in fraud detection as well as automated threat intelligence and prevention. As some in the audience are exploring, there is also significant potential in credit assessments, wholesale loan underwriting and trading. Such advanced analytics are also likely to lead to changes to the way the BoE conducts supervision.
“The PRA promotes safety and soundness based upon forward-looking, judgement-based supervision, in which we identify the key risks facing firms and set supervisory strategies to mitigate them. As a process, it can be broken down into three simple steps: 1) rule-setting and reporting; 2) analysis and monitoring; and 3) setting and communicating a supervisory strategy to mitigate identified risks. Each of these aspects of supervision is amenable to automation, machine learning or AI to some extent.
“Consider rule setting and reporting. At over 638,000 words, the PRA Rule Book is longer than War and Peace. It is also somewhat less interesting and infinitely more complex. We are currently using advanced analytics to understand the complexity and interconnectedness of the PRA rulebook, to identify ways to simplify our rules, and to make compliance with them easier for firms. And to explore ways to make reporting more efficient and effective, we are running a Digital Regulatory Reporting pilot, with the FCA, on machine readable reporting requirements that firms’ systems could interpret and ultimately automate regulatory data collection. These initiatives are goods in and of themselves, but they also create the potential to unlock the power of AI in order to improve the quality of our supervision.”
Carney also spoke about incoming climate change disclosures and real-time gross settlement to support the rising digital economy.
In a separate speech at the Innovate Finance Global Summit, deputy governor, Markets and Banking Dave Ramsden said spoke about the FCA’s Fintech Hub one year on, and looked at areas such as payments, unbundling and use of artificial intelligence.
“[The area of] artificial intelligence is an example of how a general-purpose technology is reshaping our world, with the potential to revolutionize the nature of both work and commerce. This will affect all aspects of the Bank’s mission, from the future behavior of the labor market, through its effects on employment, productivity and wages, to the future nature of finance, through its effects on customer service, trading and risk management,” he said.