Towards a Global Regulatory Policy for the application of Artificial Intelligence and Machine Learning in the Financial Sector

Abstract

This presentation analyses regulatory implications of the use of Artificial Intelligence (AI) and Machine Learning in the financial sector. Computer science and data science have an extraordinary potential to improve and facilitate many processes in the financial sector, in all stages of negotiation and execution of transactions. The interaction between advanced software and human beings, whether both parties operate as service providers, customers, financial advisors, managers or supervisors, will mark a new disruptive leap which will substantially alter the behavior, management and exchange of information among the multiple operators of the financial sector. Thanks to the digitalization and automation of numerous processes and operations, we are very close to witnessing the emergence of a new paradigm by which financial institutions will progressively become very complex entities where a large part of the decisions, market analysis and transactions will be carried out through autonomous systems. However, the analysis of the advantages that the applications of AI will bring for the financial operators and users is not enough. It is also necessary to consider other relevant aspects of this phenomenon. The initial optimism about the efficiency of the new robotic and digital technologies must be followed by a detailed examination of the new risks and potential legal problems that will undoubtedly arise between the different operators and also among regional and international supervisory bodies. AI and Machine Learning present a range of legal issues relating to privacy and data protection, consumer protection, anti-discrimination and liability issues, and cross-border issues. In this sense, it is urgent to undertake the task of looking for innovative ways to solve the new and potential legal conflicts of both a technical and cross-border nature that will inexorably arise among the parties involved in financial operations programmed and executed by advanced computer systems, as indeed it is happening with algorithmic trading, robo-advisors and smart contracts via BlockChain/Distributed Ledger Technology. These problems can not only lead to situations of market abuse by some operators but can contribute to new systemic risks and the loss of stability of the whole financial sector. For this reason, this presentation will focus on some legal issues that present the latest developments in computer science and data science applied to finance. Many legal issues of different nature require an effective and clear regulatory policy that encourages the use of these emerging technologies. The policy making should be flexible and based on international standards. The challenge of the coming years will be how to regulate such a dynamic, complex and deep technological phenomenon within a sector such as the financial sector, which needs a high degree of legal certainty and global stability for its optimal functioning.