In the latest finance news, the World Economic Forum (WEF) has published a worrisome report. It has warned that a global financial crisis is on the horizon due to artificial intelligence. AI is all set to reshape our world as we know it, and change the course of the future. Scientists and engineers have predicted that it will revolutionize the way we do everything. This includes communication, business, and even the way families are raised. While the benefits of AI will understandably outweigh the challenges, it may take us a while to experience them.
Why Will AI Cause the Global Financial System to Collapse?
According to the World Economic Forum’s report, the root cause of the collapse will be artificial intelligence. The impending crisis will stem from the way financial markets are incorporating AI and machine learning. Jesse McWaters, the lead author of the report stated that machine learning creates a “strong incentive” for back office networking. Being the head of the AI in Financial Services Project at WEF, he voiced concerns about a connected world being more vulnerable to concentration and cybersecurity risks. The system is vulnerable to attacks due to the implementation of fewer failure points.
Banks and financial institutions are increasingly adapting to AI and machine learning products and services. However, most of these tools reside in the cloud. The same cloud-based solutions are being used by hundreds of banks and institutions. This fact makes them an easy target for hackers and cybercriminals. Earlier a professor from MIT had also warned that the whole system could collapse like a house of cards due to its “sheer complexity.”
What are the Implications of AI on Tech Companies and Financial Institutions?
The WEF has raised some valid points about the involvement of tech giants in the financial sector. Tech companies entering the field of finance could potentially pose a threat. This is because of the overlapping interests and symbiotic nature of the work they do. For example, financial firms have access to the private financial data coveted by tech companies. Vice-versa, tech firms have the know-how and expertise of machine learning and AI required by financial institutions.
How Banks and Financial Institutions are Adapting to AI
Currently, Wall Street banking and investment firms are quickly adopting machine learning. Generally, these financial institutions have a sizable customer database. They also have the incentive to devise innovative solutions. Hence, banking institutions and hedge fund managers are on a hiring spree for AI researchers. The main reason behind this is back-office automation. In the last few years, financial markets have experienced the downside of this worrying trend. The automation of high-frequency trading has led to risky developments such as runaway trading events and flash crashes.
Furthermore, McWaters’ report has cautioned against the increasing use of AI in finance and its consequences. Pressing issues like biased algorithms can be used to discriminate against certain individuals. As technological advancements in the field of AI and machine learning reshape finance, new challenges and opportunities will continue to emerge.
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