Banks and investment firms in the European Union can’t dodge boardroom responsibility and a legal obligation to protect customers when using AI, The European Securities and Markets Authority (ESMA) said in its first statement on the technology.
The edict serves as a reminder that boards of all companies will increasingly be held accountable for their companies’ use of AI because it affects every aspect of their oversight duties.The World Economic Forum’s AI toolkit for boards explains that board attention is necessary because: Strategy is often influenced and executed by AI technologies and its impact on strategy will grow as AI shapes lives, customer expectations, markets and the supply chain; AI will affect financial reporting as it is put to work to process financial data; AI amplifies existing ethical issues and creates new ones that boards should heed; the management of the data, algorithms and people involved in AI requires governance mechanisms for decision-making that are consistent with and assist the organization’s overall governance
In the case of financial services, while AI holds promise in enhancing investment strategies and client services, it also presents inherent risks, and the potential impact on retail investor protection is likely to be significant, ESMA said in its May 30 statement.
ESMA outlined how financial firms regulated in the EU can use AI in day-to-day operations without violating the bloc’s Markets in Financial Instruments (MiFID) securities law. “Importantly, firms’ decisions remain the responsibility of management bodies, irrespective of whether those decisions are taken by people or AI-based tools,” ESMA said. “Central to the use of AI in investment services is the unwavering commitment to act in clients’ best interest, an overarching requirement which applies irrespective of the tools that the firm decides to adopt in the provision of services.”
ESMA’s statement covers not just instances where AI tools are developed or adopted by a bank or investment firm itself, but also the use of third-party AI technologies, such as ChatGPT, with or without the direct knowledge and approval of senior management, ESMA sai d.”The firm’s management body should have an appropriate understanding of how AI technologies are applied and used within their firm and should ensure appropriate oversight of these technologies,” ESMA said.
The EU Watchdog’s statement should serve as a warning to other sectors, says industry observers, as any corporate using AI in consumer-facing applications is likely to be held accountable when things go wrong. Already, Air Canada was held liable in court for a chatbot giving a passenger bad advice. “Gabor Lukacs, president of the Air Passenger Rights consumer advocacy group based in Nova Scotia, told BBC that the case “ establishes a common sense principle: If you are handing over part of your business to AI, you are responsible for what it does.”
Businesses are increasingly aware of the regulatory and reputational risks. IBM recently surveyed over 1,600 senior European executives on how the AI revolution is transforming the role of company leaders as they seek to maximize its opportunities while also navigating its potential threats in an evolving regulatory and ethical landscape.The survey found that generative AI deployment was at the top of CEOs’ priorities for 2024, with 82% of the business leaders surveyed having already deployed generative AI or intending to this year. A growing sense of urgency is driven by a desire to improve efficiency by automating routine processes and freeing employees to take on higher-value work and enhancing customer experience. Despite this enthusiasm, the report showed that concerns around security and privacy are tempering the rate of adoption – while 88% of business leaders were excited about the potential of AI within their business, 44% did not feel ready to deploy the technology yet, with privacy and security of data (43%), impact on workforce (32%) and ethical implications (30%) identified as the top three challenge facing business leaders.
Instead of solely focusing on the financial benefits of AI, it seems business leaders are increasingly realizing that they must actively address the societal costs and risks associated with AI or face the consequences of failing to do so.
IN OTHER NEWS THIS WEEK:
ARTIFICIAL INTELLIGENCE
Google Course Corrects AI Search Results
Google is refining the use of artificial-intelligence overviews in response to search queries after some strange results, weeks after it started rolling out AI-powered answers to U.S. users.The Alphabet unit was prompted to pull back on the new feature after users reported strange and incorrect answers, such as promoting rock consumption for health benefits and using glue to keep cheese sticking to pizza.AI overviews, launched earlier this month, provide users with a passage of text answering questions at the top of Google search results before the list of links. Google said it was able to observe patterns where the problems occurred and made a dozen technical improvements to the feature.The response is the second time this year that Google has had to publicly course correct after a major AI release.
QUANTUM COMPUTING
JPMorgan Chase Demonstrates Quantum Speed-Up
In a new paper in Science Advances on May 29, researchers at JPMorgan Chase, the U.S. Department of Energy’s (DOE) Argonne National Laboratory and Quantinuum have demonstrated clear evidence of a quantum algorithmic speedup for the quantum approximate optimization algorithm (QAOA), a development that has potential applications in fields such as logistics, telecommunications, financial modeling, and materials science.
“This work is a significant step towards reaching quantum advantage, laying the foundation for future impact in production,” Marco Pistoia, Head of Global Technology Applied Research at JPMorgan Chase. The team examined whether a quantum algorithm with low implementation costs could provide a quantum speedup over the best-known classical methods. The results “show how high-performance computing can complement and advance the field of quantum information science,” says Yuri Alexeev, a computational scientist at Argonne.
CYBERSECURITY
Intercontinental Exchange Fined $10 Million For Failure To Expose Cyber Intrusion
The Intercontinental Exchange(ICE) has been hit with a $10 million penalty for the failure of its subsidiaries – including Nyse – to quickly report a cyber intrusion to the U.S. Securities and Exchange Commission. In April 2021, according to the SEC, a third party informed ICE that the exchange operator was potentially hit by a system intrusion involving a previously unknown vulnerability in its VPN. ICE investigated and immediately found malicious code in a VPN device used to remotely access the group’s corporate network.However, ICE staffers failed to notify the legal and compliance officials at the company’s subsidiaries of the intrusion for several days in violation of internal cyber incident reporting procedures.
FUSION ENERGY
UK And Sweden Strengthen Collaboration On Fusion Energy
The United Kingdom Atomic Energy Authority (UKAEA), the UK’s national fusion energy laboratory, has signed a Memorandum of Understanding with Novatron Fusion Group, a Swedish company that aims to fast-track the transition to commercial fusion power. Novatron Fusion Group is developing an innovative machine solution (currently the only mirror machine-concept in Europe) for stable magnetic plasma confinement at KTH Royal Institute of Technology in Stockholm. The MOU is a strengthening of a Strategic Partnership – signed by Swedish Prime Minister Ulf Kristersson and UK Prime Minister Rishi Sunak in October 2023. Both nations committed to ‘exploring opportunities for collaboration on fusion energy’ after acknowledging the emerging technology’s ‘importance for long-term sustainable energy supply”.
E-COMMERCE AND PAYMENTS
India’s Adani Group Plans Push Into E-Commerce And Payments
India’s Adani Group is in talks to expand into ecommerce and payments, according to a report in The Financial Times, as the conglomerate builds a digital business to compete with the likes of Mukesh Ambani’s Reliance Industries. The company is now weighing applying for a license to operate on India’s ubiquitous public digital payments network, the Unified Payments Interface, and is in talks with banks to finalize previously announced plans for a co-branded Adani credit card, sources told the FT. Separately, Adani is in negotiations to offer online shopping through India’s fast-growing, government-backed public ecommerce platform, the Open Network for Digital Commerce.( ONDC) ONDC and UPI make up part of India’s digital public infrastructure “stack”, which attracts hundreds of millions of users a month and has become popular with groups competing to build consumer technology businesses. If finalized, the services will be available through Adani’s consumer app Adani One, which was launched in late 2022 and offers travel services such as flight and hotel bookings.
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