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Machine learning being scrutinised by Financial Stability Board

Out-Law News | 07 Nov 2016 | 10:29 am | 2 min. read

The way in which artificial intelligence could impact on financial services is to be scrutinised by a global financial services regulatory body.

Svein Andresen, secretary general of the Financial Stability Board, announced that the FSB is "beginning work to understand the financial applications of machine learning" in a recent speech (4-page /157KB PDF) at the Chatham House Banking Revolution Conference.

Andresen said the FSB, which is tasked with promoting international financial stability, will focus on "new and emerging risks" in financial technology (fintech) as the sector continues to develop.

"Much hype surrounds the development of fintech and for regulators it is essential to understand what developments are going to change the way financial markets operate and those that won’t," Andresen said. "We have been explicit in our desire to look at both financial stability benefits and risks, so as not to bias our work against fintech. Regulators are acutely aware of the need to balance these issues and of the need to be proportionate. We need to monitor and act on risks as they emerge but we need to balance this against the need to allow the development of technologies that can provide real benefits for society."

On existing fintech trends, Andresen said it is "quite possible that a number of the changes either do not pose new risks or may pose risks that are already effectively regulated".

Andresen said that, beyond work to better understand machine learning's potential impact on financial stability, the FSB has made "good progress" on other "fintech innovations".

"We have considered the financial stability implications of distributed ledger technology, and we continue to work in this area, jointly with Committee on Payments and Market Infrastructures, to identify key issues that market participants and policymakers need to address," Andresen said. "We are conducting an in depth study of the financial stability implications of peer to peer lending with the BIS’ Committee on the Global Financial System."

"We are also undertaking stocktakes with the Basel Committee on Banking Supervision of the work done by FSB and Basel Committee members at national levels on fintech issues. This has covered members’ experimentation with distributed ledger technology and what they have learned, as well as experiences with innovation facilitators – sandboxes, hubs, and accelerators," he said.

Andresen said that the FSB is also examining "the financial stability implications" of "the key elements" that feature across "the broad swath of fintech innovations". Those elements are "greater access to and convenience of financial services; greater efficiency of financial services, and; a push toward a more decentralised financial system, in which fintech firms may be disintermediating traditional financial institutions", he said.

"These elements have financial stability implications, especially if the trend toward adoption of fintech continues," Andresen said. "As a result, authorities should be vigilant and should actively monitor the effects that fintech innovations have on specific products and services, as well as on incumbent financial institutions, financial markets, and the economy more broadly."

"Authorities should also consider how their ability to supervise and regulate the system is affected. In short, we have undertaken much analysis but inevitably with a rapidly expanding landscape we have more work to do," he said.