A new paper released on the International Monetary Fund (IMF) Publications web portal warns about hazards connected with the most recent AI capabilities in the financial world as artificial intelligence (AI) continues to penetrate the finance industry.
The Rise of Thinking Machines: Report Warns of Risks From Generative AI in Finance
The report, written by Ghiath Shabsigh and El Bachir Boukherouaa, focuses on generative artificial intelligence, or generative AI. This is a type of AI that can generate unique content, including text, graphics, and video. In recent months, notable systems that make use of this technology have grown in prominence, including Openai’s Chatgpt, Anthropic’s Claude, and Midjourney.
The paper claims that while generative AI has the potential to improve risk management and automate operations, it also poses new threats to data privacy, bias, performance robustness, and cybersecurity.
Researchers draw attention to the fact that generative AI systems consume enormous volumes of online data, which raises questions regarding privacy invasions or the replication of biases derived from that data. Additionally, because the systems are able to create wholly new content, they may present plausible but false information.
The study claims:
Financial organizations that want to use [generative AI] systems in their operations face major privacy challenges from publicly accessible [generative AI] systems. Thus, this automation increases the risk that private information provided by employees of financial institutions to the [generative AI] during their interaction with it may be compromised.
The report raises the warning that if generative AI is used carelessly in finance, these problems could erode public trust. For instance, client risk profiles created by AI might be both biased and erroneous. Popular chatbots, according to the researchers, might give bad financial advice.
Gary Gensler, the current head of the Securities and Exchange Commission (SEC) in the United States, warned that artificial intelligence (AI) would be at the center of future financial catastrophes in August 2023. Some dangers associated with AI models have been proposed by the securities regulator. The SEC has authorized a new AI-powered order type for Nasdaq, making it the first time a traditional finance (trade) exchange has received such permission.
The research suggests expanding regulatory capability, enhancing the explainability of AI decision-making, encouraging global cooperation on AI governance, and closely monitoring AI systems by humans. The authors underline the need for caution, especially in a delicate industry like finance, while embracing the transformational potential of generative AI.
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