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On 11 October, the Bank of England (BoE), the Prudential Regulation Authority (PRA), and the UK Financial Conduct Authority (FCA) (together, the Supervisory Authorities) published a Discussion Paper (DP5/22) on Safe and Responsible. Adopting Artificial Intelligence (AI) in Financial Services (Discussion Paper). The discussion paper forms part of the AI-related program of works of the Supervisory Authorities, including AI Public Private Forum And being considered in the light of UK Government efforts Regulation of AI.
The purpose of the discussion paper is to provide a platform for each supervisory authority to assess the desirability of adopting AI technology in UK financial services while securing its own objectives. The BoE’s objectives are to maintain financial stability and support the UK government’s economic policy. The PRA focuses on the promotion of safety, soundness and competition for services provided by PRA-authorised firms and insurers, while the FCA’s strategic objective is to ensure market integrity, effective competition and consumer protection in the UK financial system.
To help with this objective, the discussion paper invites responses in three main categories:
1. Objectives and remit of supervisory authority
Supervisory authorities consider it useful to provide a more precise legal definition of what AI is (and what it is not) to either (1) identify what constitutes AI; or (2) seeing AI as part of a wider spectrum of analytical techniques with a range of characteristics to be mapped.
The supervisory authority is considering whether adopting a more precise definition might be helpful—and if so, what that definition should be. They believe that adopting a more precise definition can have organizational effects, for example, creating a common language for companies and regulators that can ease uncertainty, but can also lead to difficulties if the definition adopted is, in practice, too broad. .
2. Benefits, Risks and Disadvantages of AI in Financial Services
Supervisory authorities have classified benefits, risks and harms into different categories based on each of their objectives:
- customer safety
- Competition
- Safety and soundness of companies
- Protection of the insurance policyholder
- Financial stability
- Market integrity
For example, in relation to competition, he believed that consumer-facing AI systems, such as in open banking (which is the use of open APIs that enable third-party developers to build applications and services around regulated financial institutions) could improve competition. . By improving the consumer’s ability to access, evaluate and act on information. On the other hand, AI systems can also potentially facilitate collaborative strategies between sellers.
Supervisory authorities are also trying to understand what new challenges are specific to the use of AI in financial services and how they can be assessed and mitigated by firms and/or supervisory authorities.
3. Regulation
The supervisory authority is exploring whether current legal requirements and guidance are adequate to address the risks and harms associated with the adoption of AI in UK financial services and what additional interventions may be needed to ensure its safe and responsible adoption.
Next steps
The discussion paper closes on February 10, 2023, and can be accessed in its entirety on BoE’s website.
Trainee solicitor Samuel Omotayo contributed to this blog post.
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