Increasing Efficiency and Introducing New Risks — AI and ML Conduct for Asset Managers

What do commuting, your email accounts, banking and personal finance, social networking, on-line shopping and smart personal assistants have in common? They all utilise artificial intelligence (AI) and machine learning (ML) to some extent.

Since the term AI was coined in 1956, advances in computing power, the availability of enormous quantities of data and new algorithms have led to major breakthroughs, particularly in the past two decades as the use of mobile computing and communication has increased exponentially.

In financial services the use of AI and ML may benefit market intermediaries, asset managers and investors by increasing the efficiency of existing processes, reducing the cost of investment services and freeing up resources for other activities.

In response to the growth in the use of AI and ML by market intermediaries and asset managers, the Board of the International Organization of Securities Commissions (IOSCO) has published guidance to help its members regulate and supervise its use. The guidance report entitled ‘The use of artificial intelligence and machine learning by market intermediaries and asset managers’ (the final report) 1 was published on 7 September 2021.

In the final report IOSCO describes how market intermediaries and asset managers use AI and ML to reduce costs and increase efficiency, noting that the rise in the use of electronic trading platforms and the increasing availability of data have led firms to progressively use AI and ML in their trading and advisory activities, risk management and compliance functions.

Click here to view the report in full.
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