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Nikhil Rathi, Chief Executive of the Financial Conduct Authority (FCA), has called on banks to increase their investments in order to combat the rise of artificial intelligence (AI) and the threat of “deep fake” fraud.
In a speech scheduled for Wednesday, Rathi emphasizes the productivity benefits that AI can bring to the financial sector, but also highlights the risks associated with the use of automated trading robots in financial markets and the potential adverse outcomes stemming from biased datasets.
While acknowledging the potential benefits of AI, Rathi warns that its unfettered use can disrupt the integrity, price discovery, transparency, and fairness of markets. He further cautions banking executives that they will be held responsible for decisions made by AI bots within their firms.
Another area of concern highlighted by Rathi is the ability of AI to mimic language, audio, and video, citing the example of a “deepfake” video featuring Martin Lewis, a trusted personal finance campaigner, supposedly promoting speculative investments.
“As AI becomes more prevalent, the investment in fraud prevention and operational and cyber resilience must accelerate simultaneously,” Rathi states. “We will adopt a firm stance on this issue, supporting beneficial innovation while implementing proportionate safeguards.”
During his speech, Rathi also announces a call for additional input regarding the role of Big Tech firms as gatekeepers of data and the resulting data-sharing imbalance between these firms and financial services providers.
“We are also assessing the risks posed by Big Tech to operational resilience in payments, retail services, and financial infrastructure,” Rathi reveals. “We are mindful of the potential for Big Tech to manipulate consumer behavioral biases.”
Rathi expresses concern about the impact of Big Tech’s entrenched power on the normal functioning of financial markets.
“What does it mean for competition when Big Tech firms have access to unique and comprehensive datasets, including browsing data, biometrics, and social media?” he questions. “When combined with anonymized financial transaction data, this could create an unparalleled longitudinal dataset that surpasses what financial services firms possess, covering multiple countries and demographics.”
Additionally, Rathi highlights collaborative efforts by the FCA, the Bank of England, and the Prudential Regulatory Authority to establish standards for third-party service providers to UK financial firms, with a specific focus on cloud providers.
“By 2020, nearly two-thirds of UK firms were using a small number of cloud service providers,” Rathi notes. “We must be clear about where the responsibility lies in the event of failures. Primarily, this lies with the outsourcing firm, but we aim to mitigate the potential systemic impact that could arise from a critical third party.”
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