THETRADETECH DA I LY
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THE OFFICIAL NEWSPAPER OF TRADETECH 2019
Regulation
Regulators turn to artificial intelligence
for market surveillance challenges
F
or nearly a decade, financial institutions have
been warning policymakers that excessive,
prescriptive regulation and the superfluity of
reporting requirements – many of which turned
out to be duplicative or arbitraging – risked
overloading market supervisors with informa-
tion, and would undermine their ability to mon-
itor and spot systemic risks. These predictions
did unfortunately happen, but technology is
coming to the rescue for regulators.
As regulators have now been saddled with
such large volumes of unstructured data, they
are looking towards FinTech solutions such as
artificial intelligence (AI) to interrogate all of
this information.
Camille Thommes, director general at the
Association of the Luxembourg Fund Industry
(ALFI), said the CSSF (Commission de Surveil-
lance du Secteur Financier) was developing AI
solutions in conjunction with academic bodies
to strengthen its internal market surveillance
capabilities, having already successfully reduced
its reliance on paper-based processing in favour
of automation.
The application of AI in market surveillance is
certainly a step forward, but regulators do face
challenges. Mara Shreck, head of regulatory affairs
– asset and wealth management at JP Morgan
Asset Management, speaking at ALFI’s European
Asset Management Conference in Luxembourg,
said regulators urgently needed to employ individ-
uals who are well-qualified in data analytics.
“The problem is that regulators are competing
for the best talent in data with the financial
services and technology industries,” she said.
Consequently, some regulators may find it
hard to recruit and retain data specialists, es-
pecially as their earning potential in the private
sector is likely to be far greater. Compounding
the challenge even further is that there is a
serious supply shortage of data specialists.
Analysis by McKinsey – for instance – found that
demand for talent with data expertise will out-
strip supply by a factor of 50% to 60% by 2021.
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While data and AI are viewed as pivotal in
regulatory enforcement, questions are mount-
ing about the extent to which it will disrupt
financial services. A study by MMC Ventures, a
UK-based investment firm, found that 40% of
enterprises purporting to be AI did not actually
have any AI technology to speak of.
Despite a number of people having talked up
the benefits of AI, more experts accept that
similar efficiencies can be obtained at compa-
nies if they use existing, basic automation tools,
which are typically the much cheaper option too.