© Copyright Acquisition International 2024 - All Rights Reserved.

Article Image - Artificial intelligence versus regulation
Posted 19th July 2018

Artificial intelligence versus regulation

As we stand on the threshold of the Fourth Industrial Revolution, the landscape ahead includes developments in areas such as blockchain, internet of things, and nanotechnology

Mouse Scroll AnimationScroll to keep reading

Let us help promote your business to a wider following.

Artificial intelligence versus regulation

Artificial intelligence versus regulation: friends or foes?  

As we stand on the threshold of the Fourth Industrial Revolution, the landscape ahead includes developments in areas such as blockchain, internet of things, and nanotechnology: developments that are taking place at a faster rate than many of us are able to keep up with – or even easily comprehend.

Artificial intelligence (AI) is one of these very interesting areas of development that could revolutionise our day to day lives, much as the internet did in the last century.  

The term AI is often used to refer to the development of computers, computer programs or applications that can, without direct human intervention, replicate processes which are traditionally considered to require a degree of intelligence, such as strategy, reasoning, decision making, problem solving and deduction processes.  For example, an AI program can use algorithms to analyse datasets, and make decisions and take actions based on the output of the analysis – an analysis that would traditional be done by a human.  AI programs can also be developed to interact with people in ways that mimic natural human interaction, for example in online customer service support – sometimes in to an extent that the difference is hard to recognise (the ‘uncanny valley’). 

Potentially AI has the potential to supplant a great number of human processes, and it can do so cheaper, faster and without human error.  However, in practice the current applications and opportunities are much more limited and constrained by practical factors such as the sheer processing power that is required, especially pending a breakthrough in quantum computing, and ‘design’ limitations such as the inability to learn by extrapolating from limited failures, or to apply common sense to scenarios. 

Is this development a good thing? AI can cut costs, eliminate human error, and potentially make products and services available to those who might not otherwise be able to access them.  But what about the possible downsides?

50 years ago, in the film 2001: a Space Odyssey, an AI slowly turns from being the humans’ assistant, to pitting itself against them.  HAL, the Heuristically programmed ALgorithmic computer, ‘realises’ the fallibility of humans stands in the way of it achieving its operational objectives, and therefore seeks to remove these obstacles. Presciently, this film encapsulated many of the present concerns about AI – what will stop the machines ‘deciding’ to exercise the powers they are given in a way that we don’t like? For example, what is our recourse if we need a computer to evaluate a request from us, such as deciding whether or not to accept a job application, and the computer says no? We can try to appeal to other humans on an emotional level, or challenge the basis for their decision; a computer programme that is implacably based on an incomprehensible algorithm does not present that option.

Regulation is the most frequent knee-jerk response to any such question of ‘what if…’. However, many regulators are cautious about imposing regulation in a vacuum, seeking to prescribe or proscribe technologies rather than focusing on particular applications of technologies.  The well known risk of doing otherwise is the outcome that technology will develop so quickly that regulation will always lag behind.

In the financial services space, AI has already been making inroads on market practices, as evidenced by:

  • Behavioural Premium Pricing: Insurance companies have been deploying algorithms to, for example, price motor insurance policies based on data gathered about the prospective policyholder’s driving habits.   
  • Automated decision making: credit card companies can decide whether or not to grant a credit card application based on data gathered about the applicant’s spending habits and credit history as well as age and postcode.
  • Robo-advice: a number of firms have developed offerings that can provide financial advice to consumers without the need for direct human interface, based on data input by the customer regarding means, wants and needs etc, and measured against product models and performance data to find appropriate investments.

Automating these processes with AI offers the ability to manage downwards the costs of servicing a given market while potentially eliminating rogue variables caused by human fallibility. AI could thereby help to make financial services products more accessible to the public, enabling them to be offered at a price that is affordable to a greater section of the public

However we cannot forget potential risks: what if an insurance pricing algorithm becomes so keenly aligned to risk that a segment of higher risk, and potentially vulnerable, customers are effectively priced out of the market? How can an algorithm be held accountable if a customer feels that a decision about their credit card application was wrong? And what if the questions about investment intentions are too focused on what customers say they want, and miss out on the nuances of a customer’s wishes and fears that an experienced human advisor may know to pick up on and pursue?

What could the regulators do to address these potential risks, and the consumer detriment that would ensue if they materialised? One option, and likely only part of any solution, is to ensure firms are mindful of the consumer and market protection outcomes and objectives at the root of the regulations with which they must comply, and they will be held accountable when their products and services fail to deliver those outcomes.  For example, the UK’s Financial Conduct Authority (FCA) requires firms providing services to consumers to ensure that they are treating their customers fairly, and being clear, fair and not misleading.  The onus is then on firms to ensure that whatever new developments they have, these outcomes are consistently being achieved.  For the insurance firm described above, this could involve paying close attention to the parameters and design of the algorithm, to ensure that, for example, a certain pricing threshold is not breached. For the credit card firm, this could be ensuring that if a customer’s application is declined,  they are provided with information about how that decision was reached, and what factors it was based upon.  For the robo-adviser proposition, this could involve a periodic review of investments and portfolios by a human adviser. 

Practically, regulators will need to work with firms to ensure that the need to comply with such outcomes does not block development. Since 2016, the FCA has made available a regulatory ‘sandbox’ for firms, to let them develop new ideas in a ‘safe’ surrounding, to contain risks of customer detriment while products are in development, and to offer support in identifying appropriate consumer protection safeguards that may be built into new products and services.  The FCA is now exploring the expansion of this sandbox to a global staging: working with other regulators around the world to support firms that may offer their products in more than one regulatory jurisdiction.  The FCA has also been meeting with organisations who are working to expand the current boundaries and applications, at specialist events around the UK, such as the FinTech North 2018 series of conferences, which raise the profile of FinTech capability in the North of England.

By working together to balance potentially competing factors such as technological development and consumer protection, regulators and the industry may be able to provide a stable platform to develop AI, while overcoming or at least assuaging the potential fears of the target audience for these developments.  In 2001: a Space Odyssey, the conflict between AI and humans was only resolved by the ‘death’ of the AI.  Let’s hope that in real life, a way of co-existence can be found instead.


For more information, please contact:

Roseyna Jahangir, Associate at Womble Bond Dickinson (UK) LLP

Email: roseyna.jahangir@wbd-uk.com

Tel: 0207 788 2377


Categories: Leadership, Strategy

You Might Also Like
Read Full PostRead - Eye Icon
How to Choose the Best Software Development Company in 2023
24/07/2023How to Choose the Best Software Development Company in 2023

Choosing the ideal partner might seem like a difficult process with so many businesses providing their services. However, you may make an informed choice that supports your company's objectives by taking certain criteria into account and using a methodical app

Read Full PostRead - Eye Icon
Challenging the Status Quo
16/08/2023Challenging the Status Quo

As an innovator in the chargeback management and chargeback solutions space, Chargeback911 has cultivated a rich reputation for helping fight in the corner for those dealing with fraud in an online space.

Read Full PostRead - Eye Icon
Indian Ingenuity in Educational Excellence
04/02/2020Indian Ingenuity in Educational Excellence

For many students, learning and achieving academic success requires more than simply studying books. Feeling invested in and connected with can help students go above and beyond their limitations in striving for better careers. EduconIndia is helping students

Read Full PostRead - Eye Icon
How Could 21st Century Fox’s Acquisition of Sky Affect Share Prices?
09/05/2017How Could 21st Century Fox’s Acquisition of Sky Affect Share Prices?

The 21st Century Fox brand (listed as FOXA on the stock market) is one of the biggest known names in entertainment.

Read Full PostRead - Eye Icon
Economist Keith Wade Gives Outlook on US Economy
13/02/2015Economist Keith Wade Gives Outlook on US Economy

Schroders Chief Economist, Keith Wade gives his view on the outlook for the US economy ahead of the release of retail sales and consumer confidence data later this week.

Read Full PostRead - Eye Icon
Sensoring Future Growth
05/11/2015Sensoring Future Growth

Global image sensors market to grow at 10.30% CAGR to 2020 with consumer electronics having major market share

Read Full PostRead - Eye Icon
Moving Class Outside: Adjusting Academics
13/08/2021Moving Class Outside: Adjusting Academics

When you think of the typical classroom, you’re probably picturing brick walls, rows of desks, a chalkboard and a few decorations that match the subject being taught. Over this past year, though, the traditional classroom has been flipped. The pandemic sent

Read Full PostRead - Eye Icon
Evotec Announces Its Intent to Acquire Cyprotex Plc
26/10/2016Evotec Announces Its Intent to Acquire Cyprotex Plc

Acquisition would add world-leading high-quality ADME-Tox services and strengthen Evotec's leadership in drug discovery

Read Full PostRead - Eye Icon
LV= Comments on UK Inflation Rate
25/03/2015LV= Comments on UK Inflation Rate

The UK's inflation rate fell to 0% in February 2015 from 0.3% in January.

Our Trusted Brands

Acquisition International is a flagship brand of AI Global Media. AI Global Media is a B2B enterprise and are committed to creating engaging content allowing businesses to market their services to a larger global audience. We have 14 unique brands, each of which serves a specific industry or region. Each brand covers the latest news in its sector and publishes a digital magazine and newsletter which is read by a global audience.