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The Disruptive Influence of AI and Crypto

Experts comment on how the financial services sector is tackling the disruptive influences of AI and cryptocurrencies.

Earlier this month, the US Securities and Exchange Commission‘s decision regarding the SolidX Bitcoin ETF was set back to the 30th of September 2018, and could be postponed to the end of February. The SEC is reviewing “a proposed rule change to list and trade shares of SolidX Bitcoin Shares issued by the VanEck SolidX Bitcoin Trust”, which was made by the Cboe BZX Exchange. The decision is eagerly awaited since last month the SEC ruled that the Winklevoss twins could not list and trade shares of a similar fund.

In response to these challenges facing cryptocurrencies, and also recent coverage of the use of artificial intelligence to spot forgeries in the art world, Chris Eastham (Director, Technology, Outsourcing and Privacy) and Simon Lafferty (Associate, Banking and Finance) of international law firm, Fieldfisher, comment on how the financial services sector is tackling the disruptive influences of AI and cryptocurrencies:

AI

  • There is a lot of hype around AI. It is important not to confuse ‘general AI’ and ‘narrow AI’. When most people talk about AI, they are referring to the latter, which is the use of specific technologies, such as machine learning, decision engines and process automation for particular specified tasks.
  • AI can be applied to every aspect of a business, from automation of back-office processes, to customer brand engagement.
  • AI is likely to have a particularly big impact in the financial services sector, given the volumes of data that are available and the constant need for competitive edge. The regulated nature of financial services may not prove a great barrier to AI deployment; the Financial Conduct Authority (FCA) has so far expressed a positive attitude towards new technologies and is looking at how AI could be used for applications such as fraud prevention.
  • Challenges for AI, notably within the financial services sector, include the fact that many AI products are being provided by small vendors without a long track record and who often don’t understand large corporate procurement processes. This can make it difficult to contract for the delivery of innovative technologies to inherently conservative financial services institutions.
  • The EU’s General Data Protection Regulation (GDPR) places certain restrictions on automated decision-making and there remains a need for human supervision and intervention for new technologies.

Cryptocurrencies

  • The sale and purchase of cryptocurrencies are not currently regulated, provided that they are not structured in such a way that constitutes a regulated product, for example, such as options, futures or forwards.
  • The FCA is alert to developments in respect of initial coin offerings (ICOs) – however, this is currently something of a grey area, given the numerous different forms and guises that ICOs take, so regulators are playing it by ear to see how the ICOs market develops. This is an area that could become regulated quite quickly.
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