Taking back control: Why China must regulate AI in financial services
ARTIFICIAL intelligence (AI) is disrupting the financial services industry, including areas such as risk management, customer experience, and fraud detection.
The implementation of AI in finance is only going to accelerate in the future, and without careful regulation, can be disastrous. It can have a chain effect, where no one is immune, including the customers.
The need for regulation in China was recently emphasized by policy advisers at the China 40 Finance Forum.
At the forum, it was recommended that a regulatory framework specifically for AI in finance be put in place. This is because regulation is most effective when carried out in a structured manner.
Policy advisers also urged China to look into improving the technology employed to strengthen industry-wide supervision.
With the banking industry becoming more ‘intelligent’, characterized by emerging technologies such as facial recognition and big data analysis, regulators must work hard to keep up.
Utilizing obsolete technologies to tackle the rapidly evolving face of financing will no longer be enough to keep financial institutions in check.
Further, it was recommended that China avoid playing defense when it comes to these matters. They ought to constantly evaluate emerging technologies and establish industry-wide contingency plans.
Also, data privacy and security cannot be an afterthought. Authorities must, therefore, draft laws and regulations that will ensure that the data entrusted by consumers will not be manipulated or exploited.
In light of this, Xiao Gang, the former chief of China’s securities regulator, cautioned against neglecting the use of AI, reiterating that it is not foolproof.
“The key point now is how we make sure it is safe for use and include it with proper supervision”.
China is no stranger to the catastrophe of dragging its feet when it comes to regulations.
The boom and bust of its online peer-to-peer(P2P) lending sector was largely due to regulations not being created on time.
What was originally applauded as an important source of credit was being undermined by pyramid-scheme scandals, leading to great public discontent and broader government crackdowns.
Zhang Chenghui, chief of the finance research bureau at the Development Research Institute of the State Council, noted that policymakers must pull their weight, as change must start from them.
“We suggest regulation on intelligent finance be written into the 14th five-year plan of the country’s development, and each financial regulator – including the central bank, banking, and insurance regulators and the securities watchdog – should appoint its own chief technology officer to enhance supervision of the sector.”
The importance of regulation extends outside the borders of China. Regardless of geographical location, the need for regulation applies to all that wish to use AI in the finance industry.
Therefore, regulatory bodies must work together to put safeguards in place, ensuring that the industry can reap the most benefits from AI.