Top Stories
AI’s use in finance may need new rules, ECB says
Global Banking & Finance Review®
Company
FRANKFURT (Reuters) – The use of artificial intelligence in finance is still in its infancy but it needs to be monitored and possibly regulated to prevent harm to consumers and ensure the proper functioning of markets, the European Central Bank said on Wednesday.
FRANKFURT (Reuters) – The use of artificial intelligence in finance is still in its infancy but it needs to be monitored and possibly regulated to prevent harm to consumers and ensure the proper functioning of markets, the European Central Bank said on Wednesday.
The ECB saw a number of opportunities from the use of generative AI by banks and other financial institutions, such as superior processing of information, more efficient customer service and even a greater ability to spot cyberthreats.
But it also warned about risks including herding behaviour, over-reliance on a limited numbers of providers and more sophisticated cyberattacks.
“Therefore, the implementation of AI across the financial system needs to be closely monitored as the technology evolves,” the ECB said in an article published as part of its regular Financial Stability Review.
“Additionally, regulatory initiatives may need to be considered if market failures become apparent that cannot be tackled by the current prudential framework.”
The European Union has formulated the world’s first artificial intelligence rules, which will force general-purpose and high-risk AI systems to comply with specific transparency obligations and EU copyright laws.
So far, however, the ECB said the adoption of such systems by European financial companies was “in the early stages”.
“Market contacts indicate that euro area financial institutions may be slower to adopt generative AI, given the range of previously discussed risks (and) also considering potential reputational risks,” the ECB said.
(Reporting By Francesco Canepa; Editing by Muralikumar Anantharaman)
Artificial intelligence (AI) refers to the simulation of human intelligence in machines that are programmed to think and learn. In finance, AI can enhance data processing, customer service, and risk management.
Financial stability is a condition where the financial system operates effectively, with institutions able to withstand shocks and continue to provide essential services, ensuring confidence among consumers and investors.
A regulatory framework is a set of rules and guidelines established by authorities to govern the operations of financial institutions, ensuring compliance, protecting consumers, and maintaining market integrity.
Cybersecurity threats refer to malicious activities aimed at compromising the integrity, confidentiality, or availability of computer systems and networks, which can lead to data breaches and financial losses.
Herding behavior in finance occurs when investors follow the actions of a larger group, often leading to market trends that can result in bubbles or crashes due to collective decision-making.
Explore more articles in the Top Stories category
