FCA head Nikhil Rathi has called on banks to increase their expenditure in order to counter the surge in AI and the menace of 'deep fake' fraud.
In an upcoming speech on Wednesday, Rathi emphasizes the productivity advantages for the financial sector while cautioning about the risks associated with the deployment of automated trading robots in financial markets and the adverse consequences stemming from biased datasets.
According to him, "The utilization of AI can both contribute to the well-being of markets and simultaneously create imbalances and risks that undermine the integrity, price discovery, transparency, and fairness of markets if left unregulated." Rathi warns executives that they will be held responsible for decisions made by artificial intelligence bots at their organizations.
Another set of risks arises from AI's capability to imitate language, audio, and video.
Rathi cites an instance of a 'deepfake' video featuring respected personal finance advocate Martin Lewis allegedly promoting speculative investments.
"As AI becomes more widespread, investment in fraud prevention, operational resilience, and cyber security must be accelerated concurrently," he remarks. "We will adopt a firm stance on this matter, fully supporting beneficial innovation while implementing appropriate safeguards."
Rathi also utilizes the speech to announce a request for further input on the role of major technology firms as custodians of data and the ramifications of the resulting data-sharing asymmetry between these firms and financial services providers.
"We are also evaluating the potential risks posed by major technology companies to operational resilience in payments, retail services, and financial infrastructure," he adds. "Additionally, we are mindful of the risk of Big Tech manipulating consumer behavioral biases."
Rathi is apprehensive about the threats to the normal functioning of financial markets due to the dominant influence of major technology companies.
"What are the implications for competition if major technology firms possess exclusive and comprehensive datasets such as browsing data, biometrics, and social media?" he queries. "When coupled with anonymized financial transaction data, this could eventually result in an unparalleled longitudinal dataset encompassing numerous countries and demographics, surpassing the dataset held by any financial services firm."
Furthermore, Rathi highlights the collaborative efforts of the FCA, the Bank of England, and the Prudential Regulatory Authority in establishing standards for third-party service providers to UK financial institutions, with a specific focus on cloud providers.
"As of 2020, a majority of UK firms relied on a handful of cloud service providers," he remarks. "We need clarity on where accountability lies when things go awry. Primarily, this lies with the outsourcing firm. However, we aim to mitigate the potential systemic impact that could arise from a critical third party."
