Issues concerning the use of artificial intelligence in financial transactions and reporting and other monetary activities are being increasingly discussed because, similarly to computers, the internet, social media and other technological aspects of life, AI will only grow in use and importance.
Financial AI is like AI-managed airplane flight controls: it can eliminate human involvement, and potentially human error, as well as increase efficiency. But there is also the possibility of unforeseen problems, unintended consequences or a plain old malfunction.
AI is seen to be a money saver and efficiency enhancer, examples of which appeared in an article on businessinsider/com on Feb. 22, 2022: “A majority of financial services companies say they've implemented the technology in business domains like risk management (56%) and revenue generation through new products and processes (52%), per the Cambridge Centre for Alternative Finance and the World Economic Forum. As AI gains popularity in banking, financial institutions (FIs) are building on their existing solutions to solve increasingly complex challenges.”
There are billions of reasons for AI incorporation into banking, as an earlier Business Insider article, from 2019, noted: “The aggregate potential cost savings for banks from AI applications is estimated at $447 billion by 2023, with the front and middle office accounting for $416 billion of that total, per Autonomous Next research seen by Business Insider Intelligence.”
Among financial-sector uses of AI and its algorithms are identifying good loan risks and personalizing loan details for clients, fraud risk and detection, consumer credit worthiness, expense reporting, reconciling accounts, data matching, monitoring and tracking price changes, predicting consumer attitudes and behavior, and risk assessment and management. The more sophisticated AI becomes, the more its use will expand.
However, there are rarely exclusively upsides to any process, particularly one that’s groundbreaking and continually evolving. Privacy and data protection and potential for security breaches are issues. Another is claims of discrimination. Part of AI’s attraction is objectivity based on mathematical algorithms. If a person is denied a loan because of an AI determination – as AI goes ever deeper into all aspects of financial activities – there will have to be some basis on which to determine when AI can, should or will be overruled.
The Brookings Institution took a detailed look at the privacy issue in an article titled “Protecting privacy in an AI-driven world.” An excerpt: “As artificial intelligence evolves, it magnifies the ability to use personal information in ways that can intrude on privacy interests by raising analysis of personal information to new levels of power and speed. … The challenge for Congress is to pass privacy legislation that protects individuals against any adverse effects from the use of personal information in AI, but without unduly restricting AI development or ensnaring privacy legislation in complex social and political thickets.”
AI’s regulatory and consumer protection situation is somewhat akin to the catch-up played on the cryptocurrency front. Cryptocurrency grew so fast and took on so many variants that everyone from lawmakers to the IRS has been trying to figure out how to treat it from regulatory and taxation standpoints.
As-yet unpassed federal legislation that addresses AI is called the American Data and Privacy Protection Act. In addressing the algorithms at AI’s core, it says, “The term 'covered algorithm' means a computational process that uses machine learning, natural language processing, artificial intelligence techniques, or other computational processing techniques of similar or greater complexity and that makes a decision or facilitates human decision-making with respect to covered data, including to determine the provision of products or services or to rank, order, promote, recommend, amplify, or similarly determine the delivery or display of information to an individual.”
What’s left out of a law or not included in a law carries a great deal of impact. And as AI is continually changing, once passed, laws may also have to continually change.
Consumers wondering about the degree to which their financial institutions, advisers, etc., are using AI in their operations should ask how it’s used with respect to their financial interests, and why. Knowledge isn’t only power: it’s reassuring.
This article first appeared in Knox News.