Artificial Intelligence is predicted to bring about dramatic changes to the way financial markets operate, but with the possibility of a rise in market instability. This according to global law firm Baker & McKenzie.

Artificial Intelligence (AI) or technology that «learns» from patterns and behaviours and can act accordingly, is one of the fastest growing areas in fintech. Over the next three years, the most dramatic changes brought about by AI will be felt in the areas of trading, financial analysis and IT, according to the report, Ghost in the Machine: Artificial intelligence, risks and regulation.

In a survey of 424 finance executives, run in conjunction with Euromoney, including 67 from across Asia Pacific, it emerged that AI is largely seen as a major opportunity for the sector, although not one without inherent risks.

Risk Assessment Lagging in Asia 

Risk assessment and financial research are the areas where companies are most likely to invest and experiment with machine learning applications in the next three years; half of all financial services companies surveyed globally expect smart tech to be introduced in the next three years in their risk assessment functions, although in Asia this drops to just 38 percent.

«AI is here to stay, and while industry solutions and standards are far from settled, financial institutions delay AI investment at their peril. New entrants to the market, harnessing AI for platforms as diverse as investment research and risk management, will have the ability to disrupt the financial services sector significantly,» said Gavin Raftery, Banking and Finance Partner at Baker & McKenzie, based in Tokyo.

Regulators Falling Behind 

Looking further ahead, within 15 years, more than two thirds of those surveyed said their own roles in financial services would be substantially or completely changed by AI and machine learning.

The findings also identified a challenge for regulators, with more than three quarters of those companies surveyed believing that financial regulators' knowledge is not keeping pace with advances in technology.

When asked how regulators should therefore be managing the impacts of this emerging technology, the leading response was to encourage collaboration between regulators and fintech adopters, while in Asia Pacific, the top ask was to co-ordinate regulatory efforts across markets, in a systematic global fashion.