AI Regulations In Finance: How The Industry Is Evolving?

Artificial intelligence (AI) is a wonderful technology that is supposed to change how we interact with the world. It is also poised to help various industries streamline their operations and become more efficient. However, the Finance or Fintech industry is one industry where AI is expected to have a robust effect. As a result, many industry leaders like American Express and JPMorgan have started using AI to streamline their operations. However, one problem with AI is that it needs to be regulated just like any human. This is why countries worldwide are coming out with AI regulations and compliances to ensure that this wonder technology cannot be used for something wrong. 

In this blog, we will discuss the use cases of AI in finance and the AI regulations different countries have placed on the fintech industry, if any. Moreover, we will also suggest a few AI regulations that need to be placed on AI in finance. 

Use Cases Of AI In Finance

Here, we will discuss the ways AI is being used in the finance industry. So, let’s start. 

#1. Automated Data Analyses

One of the best uses of AI in finance is in data analysis. AI can process huge amounts of data without breaking a sweat and without any human error. This makes it good for going through paper trails and verifying documents. Among the many examples, the best ones come from JPMorgan. It has an AI model called COIN, which can process huge amounts of data within minutes. 

#2. Predictive Modeling

Predictive modeling is another use of AI in finance. It can be used to predict upcoming trends and changes in the finance industry. It evaluates historical data and analyzes current patterns to make a prediction. One of the best use cases of this can be seen in American Express, where the card company uses it to detect fraud and predict customer behavior. 

#3. Customer Service

Another application of AI is in customer service. Many companies around the world are using AI to interact with their customers. This significantly decreases the time it takes to cater to their needs, which helps in enhancing the user experience. 

There are many more applications of AI in finance; we have only mentioned the top 3 most useful use cases. 

AI Regulations In Finance 

As we mentioned above, industries worldwide have started incorporating AI in their operations. It’s only a matter of time before AI becomes vital for finances to function. However, there is still a polarity between the use of AI and the AI regulations being implemented, which concerns people. The rapid growth of AI in finance has made the government’s job quite hard. Also, just like the measures taken to ensure cybersecurity and data privacy are taken on the world, state, and industry-specific levels, AI regulations will have to take place similarly. Let’s see a few AI regulations imposed by governments around the world. 

Europe was the first region in the world to impose AI regulations. The EU introduced its AI Act on December 8, 2023, and became the first governing body to introduce AI regulations and compliances. Moreover, the European commissioner recently announced an agreement between the G7 countries to set guiding principles on AI and a code of conduct for AI developers. This agreement will complement the AI act introduced by the EU on an international level. 

Furthermore, almost a dozen states in the USA have imposed AI regulations to ensure customer privacy in industries such as finance, healthcare, government, and insurance institutions. The USA has also proposed an American Data Protection And Privacy Act. This act outlines the rules for AI, like risk assessment obligations, which would directly impact the companies developing AI models or using them in their operations. Moreover, the US Fifth Service Court also proposed that lawyers certify the use of AI in briefs and court filings of every fintech. 

Does Fintech Really Need AI Regulations?

The rapid growth of AI applications in finance has opened Pandora’s box of uncertainty. This is the reason why AI regulations are vital. Without regulations, there is no scrutiny over the use of AI in fintech, which can result in unethical and illegal activities. The most important thing to deal with is the privacy issue. Due to the lack of ethics in an AI model, there is nothing to stop the AI model from exploiting your personal data in case of a malfunction. Moreover, the dependency on AI leaves people with a sense of uncertainty over the future of the industry because even a small problem in AI can bring the whole fintech industry down.   

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