The concept of an artificial intelligence (AI) is both wondrous and frightening, in no small part due to Hollywood portrayals of killer
robots or advanced computer networks that decide
humanity needs to be controlled for its own good.
But the reality of AI is rather more mundane by comparison, though that doesn’t mean it is not beginning
to have a major influence on the way financial services
The Oxford English Dictionary defines AI as:
Artificial intelligence has been with us a long time and many believe it is
set to take over financial services in the coming years, writes John Bakie.
mass noun [ahr-tuh-fish-uh l in-tel-i-juh ns]
1. The theory and development of
computer systems able to perform tasks
normally requiring human intelligence,
such as visual perception, speech
recognition, decision-making, and
translation between languages.
The algorithm revolution
However, they remain very much a
tool in human trader’s arsenal, rather
than as a replacement, but recent
trends have seen some deploying what
has come to be called “the algo of
algos” or a secondary algorithm that
takes a more strategic role and is able
to select appropriate algorithms and
their parameters without human intervention, perhaps one day eliminating the human trader’s role entirely.
More recent deployments of AI
have seen the rise of the robo-adviser, a program which can help retail
investors to choose the funds that
best suit their circumstances by using
their personal information to make a
tailored recommendation of the best
financial products for that individual.
And of course, we’ve also seen the
rather rapid rise of blockchain in the
past few years, a technology which
has the potential to replace vast
headcounts in settlement divisions of
banks due to being able to automatically confirm settlement of a transaction within seconds rather than days.
While blockchain has attracted a lot
of attention recently, it is far from the
only major AI development project
going on in the industry today. One
such firm is Palantir, which is developing software to assist in the analysis of
Eric Rosenblum of Palantir says of AI:
“It’s not about getting rid of people but
helping them to do their jobs better.”
This definition falls short of many of the sci-fi movie
AI trappings, in particular, it does not require a con-
scious or sentient machine, simply one that can take
over some or all of a human’s abilities in performing a
task and which can adapt to changing sensory input.
One of the most ubiquitous uses of AI in financial
services over the past decade is the securities trading
algorithm. Trading algorithms utilise a variety of different strategies to trade more quickly and effectively
than any human being can, but crucially fit two of our
definitions of AI, they perceive the market by identifying data trends and then make decisions on when and
where to trade an order.