AI will be the most important “regtech” of all time

Posted: 04/09/2017

I’m a smart person. I have an IQ above the mean. I’ve spent decades working in and around financial services. I can assimilate and structure infor...

I’m a smart person. I have an IQ above the mean. I’ve spent decades working in and around financial services. I can assimilate and structure information. I have a science degree. I know roughly what a blockchain is, for goodness sake. But when my financial adviser popped in to talk about pension scheme options the other day, he may as well have been speaking Mandarin.

I had literally no idea what he was talking about. Yet this is one of the most important areas of my life and vital to my future well-being and the well-being of my family. I need help. And that help may be coming.

Smart phones, voice interfaces, machine learning and above all artificial intelligence (AI) are going to change everything.

It is difficult to overestimate the impact of AI on the financial services industry. Earlier this year, Wired magazine said that it is “no surprise that AI tops the list of potentially disruptive technologies” in financial services and I completely agree. Financial services are an information business, and AI’s ability to derive knowledge (and wisdom) from innovation will undoubtedly exceed ours in the foreseeable future. And after that? Who knows! When buyers and sellers stop being people, albeit people with expert systems and cloud-based data analytics and real-time modelling behind them, and start being supercomputer AI avatars, the nature of the business must change. We may be a decade away from those supercomputers not only emulating human brains (but we’ve already got several billion of those, and they’re not all that) but exceeding them. How can we begin to think about financial services a generation from now?

Well, we need to start somewhere. While articles in business magazines may focus on using computer brains to run chatbots and implement decision support systems now, the real revolution is about the assessment, management and pricing of risk. Using machine learning and pattern recognition to assist with fraud prevention is already commonplace, as are the first generation robo-advisors and rudimentary near-Turing Test chatbots but they are baby steps (although Gartner estimate that more than four-fifths of consumer interaction will be with bots by 2020). Being able to talk to a computer at your bank is of mild interest to me, since I don’t want to talk to the bank at all. When my mobile phone supercomputer gateway can organise my pension for me, we will be well and truly in a new world.

Financial services organisations need to start planning for this now. Forrester claim that a quarter of jobs will be “impacted” by AI before 2020, so it’s not acceptable to delay setting strategy around AI. Just to give one example to illustrate the urgency, since machine learning and cognitive systems are such voracious consumers of data, data flow has business model implications. If organisations are cut off from the data flow (if banks, for example, become nothing more than money pipes) then they will not be able to compete at all, let alone poorly. This is just one example of the strategic decisions that need to be made now.

It’s because AI is so central to the future of financial services that I was delighted to be asked to give a keynote at Digital Jersey's forthcoming Artificial Intelligence in Finance Retreat on 14th-17th September. Digital Jersey, along with Cognitive Finance, have created this exclusive retreat to look at how the world of AI might shape the future financial services industry. I’ll be giving the keynote talk on Saturday 16th September on why AI will be the most important “regtech” of all time and making a few suggestions as to how Jersey can take the lead in using the technology to create a better (that is faster, cheaper and more transparent) financial services sector.

AI is an event horizon for the financial services industry. With our current knowledge, we just can’t see the other side of the introduction of true AI into our business. But we can see that our traditional “laws” of cost-benefit analysis, compliance and competition cannot hold in that new digital financial services space, which is why it is important to start thinking about what the new “laws” will be and how Jersey’s sophisticated financial services industry can take advantage of them.

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