As AI adoption grows, greater resources are needed to manage risk

By Gaia Lamperti

Companies need to allocate greater resources to managing risk from Artificial Intelligence (AI) ahead of the introduction of the European Union’s Artificial Intelligence Act, a new report from leading independent tech research and advisory firm Verdantix says.

The proposed Act, which is currently going through the European Council and Parliament and will become law once they agree on a common text, aims to harmonise existing regulations, future-proof development and build trust in the technology.

Research in Verdantix’s report The EU Sounds The Clarion Call on Artificial Intelligence Regulation shows how importantly businesses regard AI innovation with nearly half (49%) of global real estate executives aware of the technology and planning to use it in the next few years. By comparison, 33% say the same about 5G private networks and 31% about blockchain.

“Firms utilizing AI will need to develop strategies to track its usage. Clearly, in light of this regulation, black-box systems will pose significant challenges for firms seeking to audit AI systems and conduct conformity assessments,” Verdantix global head of research Rodolphe d’Arjuzon, said. “Incoming regulation will affect many users, but even more significantly it also influences the future of AI development.”

According to the report, it is advisable that firms monitor the EU regulation rollout and start allocating resources to managing AI risks, as the Act sets out obligations for developers and users of the technology and firms will be subject to stringent auditing and review processes.

Experts believe that the regulation could also have the effect of creating a more transparent marketplace with clients and investors able to distinguish between true AI and companies using the term AI for marketing purposes. A more developed market would not only reap the rewards of AI adoption but also mitigate the risks.

Indeed, while artificial intelligence can efficiently handle key business processes through a combination of machine learning and big, real-world data,  the technology may still contain human bias and prejudices – explicit or implicit – that can be learned and reinforced by the AI system.

“The use of AI is becoming increasingly widespread in financial services, but regulations have considerably lagged innovation, so it can be difficult for financial institutions to find guidance on AI best practices,” commented Gery Zollinger, Head of Data Science & Analytics at Avaloq, a software provider for banking and wealth management.

“To maximize the value of AI, financial firms need to understand how the technology behind it fits in with the regulatory landscape. The European Commission (EC) is one of the first regulatory bodies in the world to produce a draft proposal on the use of AI. It classifies AI activity by risk, from unacceptably high risk to minimal risk, with credit lending, for example, classified as high risk due to the potential for prejudice. The EC’s proposal will likely influence similar regulations in jurisdictions around the world,” he added.

Also The Bank of England and FCA, through the Artificial Intelligence Public-Private Forum (AIPPF), have announced a Discussion Paper on AI that will be published later this year to ascertain how the current regulatory framework applies to AI and collect industry views on how policy can best support safe AI adoption.

“AI needs to be coupled with a robust monitoring framework to constantly improve performance as well as to identify and rectify any potential shortcomings, including unethical outcomes. And in line with EC recommendations, AI systems should primarily be used in low-risk areas – such as investment recommendations, client churn predictions and chatbots – to minimize the severity of any unfair bias,” Zollinger said. “Financial firms need to be particularly careful and implement even more stringent monitoring measures.”