ASIC flags future consultations on AI

Describing artificial intelligence as a "high and important priority", the Australian Securities and Investments Commission (ASIC) has indicated it will hold consultations in the next financial year to reflect AI developments.

The regulator also warned against allowing the fear of missed opportunities in AI to “drive poor decisions, outcomes, or controls.”

“Wholesale markets have been early adopters of new technology, first movers in using technology to increase output and efficiency, and improve processes. While everyone, from consumers to corporates, is talking about AI as a brand-new thing, we in this room know that the financial markets have been at the forefront with algorithmic trading and using AI in electronic markets for over a decade,” said ASIC chair Joe Longo at the ISDA/AFMA Derivatives Forum Sydney.

“We can expect AI to continue to drive efficiencies in risk management and operations, such as price prediction, hedging, fraud detection, and so on.”

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However, AI remained an area of rapid change and expansion with its own potential risks and issues and there was no real consensus yet on how to regulate AI, if at all, he added.

While the European Commission had already proposed an AI law that took a risk-based approach, a pro-innovation regulatory model had been proposed in the UK. Canada and China were also mulling how to regulate the new technology.

In Australia, Longo highlighted the government’s discussion paper, ‘Safe and Responsible AI in Australia’, that sought input on how to approach the issue.

“To be clear, my and ASIC’s interest is – and will always be – the safety and integrity of the financial ecosystem. As with any new technology, to the extent that AI affects that ecosystem, to that extent we will be involved,” Longo affirmed.

“As we realise the potential of tech, we have to do all we can to avoid negative disruption, learned market abuse, misinformation, discrimination, and bias – whether intended or unintended.

“I want to take this opportunity, as an aside, to emphasise that ASIC has AI as a high and important priority. Not just in regards to wholesale markets, but also its role in – and for – the whole economy, including consumers and small business.”

The regulator warned against rushing too quickly into AI-driven innovations without applying appropriate controls and governance.

Longo explained: “Entities need to focus on robust governance and operational resilience measures. This is nothing new – just because the technology has changed nobody should think that means your existing obligations around good governance have changed with it. They haven’t. But it’s all too easy to forget this in the face of such rapid and unprecedented change. Easy – and dangerous.”

In the next financial year, ASIC expected to consult on expanding automated order processing rules to futures markets to reflect developments with AI and update its electronic trading guidance for the same reason.

“ASIC will also continue to scan the environment to understand how AI is being applied and the risks and opportunities attached to those methods of application. We will look at other developments in this space as well, such as crypto tech – digitisation of assets, carbon markets, FX, and lending,” Longo added. 

“There must be an important focus on controls alignment with innovation. Our expectation is for appropriate controls to be part of the design phase and in place before new tech is switched on.”

Already, overseas firms like JPMorgan Chase were embracing AI-driven technological innovations. Recently, the bank applied to trademark a product called IndexGPT that will use AI towards selecting investments for customers.

Similarly, Morgan Stanley Wealth Management had implemented a Next Best Action tool that acted as a platform for personalised communication and client engagement. Some 90 per cent of its advisers were using the tool on a monthly basis and it was helping them “in every metric” of their business including client retention, engagement, and revenue, according to Jeff McMillan, head of analytics, data and innovation at the firm.