How AI is rapidly changing the finance industry

By: Zarina Morris

Banks around the world are using robo-advisory services to provide financial advice. For example, Schwab Intelligent Portfolios provides investors with portfolio recommendations using hundreds of lines of code; instead of working with a professional, customers rely on an algorithm designed to create a portfolio tailored specifically for them. 

As the financial industry becomes increasingly reliant on AI, it is affecting the stability of many jobs. 1Opimas estimates that by 2025, financial institutions will replace approximately 10% of the workforce with computers and 2approximately 40% of all American jobs will be displaced by 2030, says PWC. According to Opimas, this shift in the workforce will lower the ratio of costs to profits by approximately 28%.

Today’s increased regulatory environment has pushed technological innovation in the industry. As the financial services industry becomes more reliant on technology, regulators are concerned with the industry’s ability to handle technological challenges3.

In response, regulators have adopted an array of data-gathering and analytical tools as they discover more about institution and systemic activities. They are now better equipped to predict potential problems and implement regulations before a crisis occurs. 4The UK’s Financial Conduct Authority (FCA) is currently looking at the use of AI and machine-learning techniques to implement regulatory compliance. Nick Cook, head of information operations at FCA, says that regulatory technology firms are informing the regulator on how to assume digitalized compliance.

In addition, the FCA is looking at how to make parts of the handbook machine-readable and then 100% machine executable by converting reporting rules into simpler rules that machines can interpret.

Regulatory technology is also focussed on improving reporting procedures (e.g. anti-laundering rules) for banks and financial services. Cook says that machine learning helps firms operate more efficiently under the regulations. It is also cost-effective – experts estimate that machine learning will reduce costs by approximately $80 billion worldwide.

AI is poised to change and dominate the financial markets despite the industry’s reservations and fears. While it provides many benefits to the finance industry, including cost savings and efficiency, how do you know if you are ready for the changes? To learn how you can navigate the new world of artificial intelligence, contact Keith Picco, 212-651-5143 or visit us at www.sscglobeop.com.

1http://fortune.com/2017/04/06/blackrock-larry-fink-robots/
2http://fortune.com/2017/03/30/blackrock-robots-layoffs-artificial-intelligence-ai-hedge-fund/
3https://www.accenture.com/t20161212T064530__w__/us-en/_acnmedia/PDF-4/Accenture-Strategy-Financial-Services-Technology-Boardroom.pdf
4https://www.cnbc.com/2017/07/13/uk-regulator-looking-to-use-a-i-machine-learning-to-enforce-financial-compliance.html