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Delivering Ethical Outcomes in Finance with AI

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Swiss Life

This is a sponsored article from Avaloq.

Gery Zollinger, head of Data Science & Analytics at Avaloq, discusses the ethics of artificial intelligence in financial services.

Artificial intelligence can generate real value for business by supporting targeted marketing and analytics, chatbots, and other important functions, but it can also produce biased decisions. AI systems that are trained with incomplete or unrepresentative data sets could lead to unfair outcomes for groups that have historically faced discrimination, so it is vital for financial firms to mitigate and prevent such risks.

Design and regulatory challenges of AI

AI is a blend of machine learning and real-life data – data which may contain explicit or implicit prejudices that can be learned by the system. Using historical data to train AI may reinforce frequent human prejudices – including subconscious ones. When designing an AI system, it is crucial to identify and fully comprehend the high-risk aspects of the business and outline a plan to constantly monitor and recalibrate the algorithms. By doing so, banks and wealth managers can prevent outcomes that are potentially unethical and therefore maximise the benefits AI can generate for the business.

The Monetary Authority of Singapore (MAS) has established a set of principles to promote fairness, ethics, accountability and transparency (known as the FEAT principles) in the use of AI in data analytics, specifically in cases that concern the financial sector. These principles provide guidance on the responsible use of AI and data analytics to strengthen governance and to promote public confidence in the use of this technology. Banks have already identified AI as a catalyst for growth; however, regulation is struggling to keep up with the pace of innovation, making it challenging for financial institutions to abide by any set of AI best practices or principles.

AI applications in wealth management

When the concept of AI was first introduced in financial services, it revolved around automating routine processes, freeing up resources for wealth managers to focus more on honing their value proposition and strengthening relationships with clients. Now, AI technology has quickly evolved to do considerably more. Financial institutions today can bring into play AI to promptly create personalised portfolio recommendations based on investor suitability and preferences.

A recent trend that is being driven by AI technology is conversational banking, an innovative approach to relationship management based on real-time communication between investors and advisers on social messaging services. AI systems can use natural language processing (NLP) to understand client intent and recommend optimal next actions to advisers. In addition to efficiency gains, it can boost engagement and enhance the client experience. In the wealth management industry, the true strength of AI-powered virtual assistants is their ability to help relationship managers serve a larger and more diverse client base, all while maintaining a highly personalised service. This proximity to the client relationship makes the ethical considerations of AI all the more important.

Maximising AI solutions to transform the client experience

To get the most out of AI-assisted services, financial institutions need an innovative technology partner that understands the wealth management industry and the local regulations. AI systems require a robust monitoring system to constantly improve performance and close any ethical gaps to prevent unfair outcomes across a variety of functions, including data analysis, fraud and risk detection, investment advisory, and personalisation.

With the spotlight on the substantial benefits on offer, it is time to reconsider how AI can be deployed effectively and ethically. Within wealth management, AI systems should be used in low-risk areas – such as investment recommendations, client churn predictions and virtual assistants – to limit the impact of any potential bias. Optimised use of AI can help banks and wealth managers ensure fair outcomes for their clients while providing a competitive edge in a fast-growing market.

Swiss Life

This is a sponsored article from Avaloq.

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