The impact of regulations on AI in investment services : a comparison between the US and the EU

Abstract

Artificial Intelligence (AI) is becoming an increasingly more popular tool within investment services. In fact, the use of AI has begun to alter many processes within investment firms. Traditional models are being replaced with more effective, efficient, and precise models. It has become important in areas such as regulatory compliance, anti-money laundering, customer services and support, algorithmic trading and portfolio management. However, the use of these programs also brings with it several ethical considerations and risks that need to be considered. Questions in data protection and cyber security, AI bias, accountability and liability, oversight, disclosure, and knowledge need to be addressed. After all, AI can be just as dangerous as it can be helpful. Regulation needs to be set-up by jurisdictions across the world to protect investors and the financial stability of the world. The dissertation addresses these developments in three ways. Firstly, it highlights the impact AI has had in reshaping the management of investment services. Secondly, it outlines the impact of regulation on AI in investment services. Finally, it compares the approaches taken by the European Union and the United States of America in their attempt at regulating AI in investment services. Ultimately, as AI becomes a more impactful tool within financial services, legislation needs to address any risks that may arise. Certain checks and balances need to be put in place to ensure that trustworthy AI is being developed. The AI Act has planted the seeds of regulation. However, it does not address the risk AI may bring to an investment firm. When addressing these risks, it is important that regulation is proactive and not reactive, balancing the need for innovation and development, while ensuring a trustworthy and secure financial system.