ASIC chair Joseph Longo says the regulator is conducting a review into the use of artificial intelligence (AI) in financial advice as it explores how to prevent AI harm to consumers.
Speaking at the UTS Human Technology Institute Shaping Our Future Symposium in Sydney on 31 January, Longo discussed how businesses in financial services have a duty to balance innovation with the safe use of AI.
He said ASIC is already conducting a review into the use of AI in the banking, credit, insurance and financial advice sectors, testing what risk to consumers are being identified by licensees and how licensees are mitigating these.
“This will give us a better understanding of the actual AI use cases being deployed and developed in the Australian market – and how they impact consumers.”
Money Management previously wrote about the use of AI in financial advice and paraplanning. Guideway Financial Services announced an AI avatar paraplanning service called FinTalk, while Raiz Invest launched an AI-powered service called Your Beautiful Life which allows advisers to produce meeting notes, review a client’s finances and produce a statement of advice.
Meanwhile, Netwealth highlighted financial advice as an early beneficiary of AI and is using Microsoft Copilot in its own business.
Longo said it was a misguided belief that AI wasn’t already regulated, and asserted the regulator was already taking action in this area such as against insurer IAG.
“In 2022, the Federal Court found that RI Advice breached its licence obligations to act efficiently and fairly by failing to have adequate risk management systems to manage its cyber security risks. It’s certainly not a stretch to apply this thinking to the use and operation of AI by financial services licensees.
“In fact, ASIC is already pursuing an action in which AI-related issues arise, where we believe the use of a demand model was part of an insurance pricing process that led to the full benefit of advertised loyalty discounts not being appropriately applied.”
Further challenges to AI use include data poisoning, input manipulation, AI “hallucinations” and privacy and intellectual property concerns. A possible option to mitigate these risks, Longo suggested, would be the use of an AI risk assessment before implementing the use of AI, but he acknowledged there would need to be questions asked as to its effectiveness.
“These questions of transparency, explainability and rapidity deserve careful attention. They can’t be answered quickly or off-hand. But they must be addressed if we’re to ensure the advancement of AI means an advancement for all. And as far as financial markets and services are concerned, it’s clear there’s a way to go in answering them,” he said.
