PIMFA
What is Artificial Intelligence?
A recent Financial Conduct Authority (FCA) discussion paper, DP22/4: Artificial Intelligence, offered the following definition of Artificial Intelligence (AI):
‘It is generally accepted that AI is the simulation of human intelligence by machines, including the use of computer systems, which have the ability to perform tasks that demonstrate learning, decision-making, problem solving, and other tasks which previously required human intelligence. Machine learning is a sub-branch of AI.
AI, a branch of computer science, is complex and evolving in terms of its precise definition. It is broadly seen as part of a spectrum of computational and mathematical methodologies that include innovative data analytics and data modelling techniques.’
- WHAT DO FIRMS NEED TO CONSIDER?
Many PIMFA members are already using AI systems and tools in their everyday operations, and it is likely that the adoption of AI in financial services will increase rapidly over the next few years.
PIMFA firms already use AI tools for several purposes. For example, they analyse large volumes of data quickly, easily, and accurately, which enables their employees to spend more time working with and for their clients.
There are concerns that as AI becomes more advanced, it could introduce new risks, for example:
system develops biases in its decision making
leading firms to make bad decisions
rESULTING IN Poor outcomes for their clients
This is why it is essential that firms deploying AI systems have a suitably robust control framework around their AI components to keep a careful check on what they are doing.
As with any innovation, AI has the potential to make fundamental and far ranging improvements in how firms can serve their clients. However, we must ensure it is continually monitored and checked regularly to manage the risk and maximise the benefit.
- What are regulators doing?
A number of government departments are asking regulators such as the Financial Conduct Authority (FCA), Bank of England (BoE), Information Commissioners Office (ICO) and Competition and Markets Authority (CMA) to publish an update on their strategic approach to AI and the steps they are taking according to the White Paper. The Secretary of State is asking for this update by 30 April 2024.
On 13 March 2024, the EU Parliament approved the EU Artificial Intelligence Act. The EU AI Act sets out a comprehensive legal framework governing AI, establishing EU-wide rules on data quality, transparency, human oversight and accountability. It features some challenging requirements, has a broad extraterritorial effect and potentially huge fines for non-compliance.
latest news
New FCA blog on tech, trust and teamwork
Nikhil Rathi, FCA CEO, in conjunction with John Edwards, UK Information Commissioner, has published a blog looking at how they can help firms to use AI responsibly, while protecting consumers and fostering innovation. The post highlights that uncertainty and lack of familiarity are the main blockers to innovation.
There is a call to firms and trade bodies to work with the regulator to keep communication channels open, not just when there’s a problem but earlier in the innovation journey.
Read the full blog here.
Fintech providers Sidekick and PlannerPal win PIMFA WealthTech AI TechSprint and showcase solutions at the Morningstar Investment Conference
PIMFA WealthTech, along with principal strategic partner Morningstar, recently launched a tech sprint asking fintech providers “how can wealth management and financial advice firms leverage AI to enhance operational efficiency by optimising end-to-end processing across front, middle, and back-office functions?”
Following a competitive process, fintech solutions Sidekick and PlannerPal, were selected as winners by the PIMFA WealthTech Advisory Council.
Read more about the tech sprint and the winners here.
FCA proposes AI live testing
The FCA proposes the launch of AI live testing – a new initiative under its AI Lab aimed at helping firms safely deploy AI in financial services. The pilot would offer selected firms tailored regulatory and technical support as they test AI models in controlled live environments. The FCA seeks feedback on deployment challenges and whether this approach addresses them.
Responses are due by 10 June 2025, with the pilot expected to begin in summer 2025 and run for 12 months.
More details can be found here.
New PIMFA Blog: AI and the Environment: A Double-Edged Sword for the Investment Industry
Whilst a recent survey reveals that 62% of wealth management firms believe AI will significantly reshape their operations, the infrastructure powering AI, such as data centres, poses a substantial environmental challenge, generating vast amounts of e-waste and consuming significant energy.
In this blog, PIMFA’s Senior Policy Adviser, Maria Fritzsche, delves deeper into the problems and potential solutions.
Read the blog here
The potential for AI in UK wealth management
Read this article in our recent Journal by Suman Rao, Managing Director at Avaloq.
Find out more about our next Women Symposium here
