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The broadening use of artificial intelligence (AI) and other innovative technologies among businesses, government, retail investors and bad actors has the potential to create significant disruption in capital markets, a panel explained to attendees at ASC Connect 2023. The increasing use of these technologies reinforces the importance of regulators whose roles are becoming increasingly critical in the face of rapid technological change.
ASC Connect is an annual conference hosted by the Alberta Securities Commission (ASC) that brings together stakeholders from Alberta and across Canada to discuss critical issues and evolving trends affecting Alberta’s capital market.
Dr. Ryan Clements, Director of Advanced Research & Knowledge Management at the ASC, stressed that “it is ironic that [innovative] technologies designed to democratize financial services to create a more inclusive environment and connect global markets, may raise asset prices and lead to more financial exclusion, or create other types of externalities or unintended consequences that white papers didn’t tell us about when technology was being deployed.”
Clements moderated a panel discussion featuring Dr. Jean-Christophe Boucher, Associate Professor at the University of Calgary, and Mark Le Dain, the former Vice-President of Strategic Partnerships at Neo Financial. The trio focused on the benefits and risks of new technologies and innovation in finance and capital markets, and how regulators could respond to them.
“I see financial markets as a function of information and speed,” said Boucher. “People with good information can make decisions rapidly and can make a lot of money. If you can build better models to extract a lot of information with AI, you can identify the signals in the noise and make decisions on that information.”
Le Dain agreed, but added that AI can also create a lot of noise.
“If a lot of investing is tuning out that noise, suddenly that job is made more difficult because you’ve got infinite types of analysis on companies,” he said. “And some of it isn’t accurate, but it’s out there.”
That said, the continued acceleration of technology deployment in capital markets does come with pros.
Le Dain pointed out that there are areas where greater technological and data freedom will benefit Canadians, especially with financial products. Le Dain pointed to Neo Financial as an example because it’s a fintech company that offers new digital-based financial services to Canadians.
“There is a lot of friction around data and financial services,” said Le Dain. “Canadians actually pay the highest fees for core banking products in the developed world. A lot of people are overpaying for legacy products, but in Canada, we make it very difficult to target those individuals. A lot of countries have solved this with open banking. But there isn’t really the willingness here, or at least the urgency to make that data accessible.”
Open banking refers to data-sharing efforts where consumers share their financial data with fintech companies who can then offer competing products based on their financial history, for example.
“There’s a trade-off between speed and a customer-centric focus, and the risks associated with these things,” Le Dain said, adding that these trade-offs will become increasingly more pressing for stakeholders to address as AI is deployed on large amounts of customer, business and government data.
On the regulatory front, Clements says the ASC and other regulators are already planning well into the future to address opportunities and challenges that come with the use of AI and other technologies.
“We’re assessing the use of technologies, including artificial intelligence and data in terms of how it could augment the regulatory functions,” said Clements. “We’re also assessing how registrants are using it and whether or not the use of artificial intelligence technologies could lead to things like predictive biases or have a negative impact on certain stakeholders in the capital markets. We’re also looking at it in terms of how bad actors can use it for nefarious purposes.”
For more information, to see conference highlights, or to replay panel conversations from ASC Connect, visit www.asc.ca/en/asc-connect-2023
