Rage against the machine

You might not have thought about it, but there is a revolution happening before our eyes.  A movement that will change the way the financial markets work forever. A disruptive technology that has the power to add enormous value to the FinTech industry.

I’m talking about Artificial Intelligence

Financial industries have always been early adopters of technology. So it’s not surprising that awareness within financial organisations of the potential benefits of Artificial Intelligence (AI) is high. And when senior banking technology leaders were surveyed by FinExtra recently, some interesting opinions were revealed:-

  • AI is already, or will within two years, be considered mainstream by a quarter of the UK respondents
  • Critical banking functions such as fraud and risk reduction are likely to be transformed by AI in the next five years.
  • Machine learning (ML) and Robotic process automation (RPA) are the AI technologies most likely to be in use already or are on the immediate roadmap.

Why the sudden noise?

Although the buzz around AI has really grown in the last few years, it has actually been used in some areas for ages. Trading algorithms within investment management is a great example. Automated trading was the first step along this road, drawing on AI and ML in the creation of intuitive systems that automate trade decisions according to a set of criteria faster than you can say ‘profit’.

Undoubtedly there are still asset management companies with fund managers making judgement decisions for their investors, but increasingly, repetitive tasks that are data-driven will become automated, with the humans overseeing the systems and stepping in when things get hairy.

What’s driving the change?

Most of the planned uses within financial organisations tend to revolve around extracting more value from volumes of data and finding patterns, opportunities and risks that they may not already be aware of.

Within investment management, investors are growing ever more demanding. They are looking for better performance and lower fees. AI removes the labour intensive task of looking at backtested data and creating plans with the hope that what worked before will work again in ever-changing markets. And it removes the human error factor. What it delivers, in a nutshell, is more consistent results at a lower cost.

What areas of investment management will benefit?

The applications for artificial intelligence are more wide-ranging than just simplifying trading decisions. I see a whole raft of areas where this technology will have an impact.

Within the areas of managing a client’s portfolio, we’ll see it used to:

Map relationships – identify non-intuitive relationships between, for example, securities and market indicators

Analyse alternative data – monitoring Google for words around specific areas to help build hedging strategies

Improve insight – assessing management sentiment by reading earnings transcripts

Identify areas for growth – looking at website traffic to align strategies with behaviours

It’s not just front end tasks that will benefit either. In terms of operational efficiency, expect to see:

Intelligent operations – using ML to automate functions

Reporting and communications: the production of customer reports, market commentaries, marketing materials, all generated using natural language processing

Monitoring risk – using AI-based algorithms to identify suspicious transactions, and trigger appropriate responses

Employee insights – monitor employee conduct risk and morale

So how fast will this all happen? I think the increased adoption of artificial intelligence is a no brainer, but it is reliant on having access to real-time data. The speed that it can be rolled out will depend on organisations building the necessary base of knowledge. It also demands a culture shift, to one that embraces innovation. Those organisations that do that successfully will harness the power of AI to help them progress and compete in modern financial markets.

What do you think?  Has your organisation taken the first steps with AI – or is not yet on your radar?

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