Bank of England sets out research on AI and ML in financial services

Few industries have been as impacted by the rise of AI as financial services. Recently published by the Bank of England, the “Machine Learning in UK Financial Services” report finds that almost three in four (72%) of UK financial service firms are either using or developing machine learning solutions.

A diverse range of business areas have embraced the benefits of machine learning. For example, insurance firms are utilising these tools in claims management and capital reserve modelling. Banks, too, are using machine learning for credit risk issues and anti-money laundering regulations.

This rising adoption looks set to continue, as firms expect the overall median number of ML applications to increase by 3.5 times over the next three years. The largest increase is expected in the insurance sector, followed by banking.

As AI and machine learning solutions continue to become embedded across the financial services ecosystem, the research indicates that firms in the industry are using existing governance frameworks to monitor the use of machine learning.

However, the Bank of England report also draws attention to the potential risks of machine learning. “There are trade-offs with the use of ML and the technology can pose risks. The top risks identified to consumers relate to data bias and representativeness, while the top risks to firms are the lack of explainability and interpretability of ML applications,” explains the report.

Some respondents in the report point to the challenge of integrating machine learning solutions alongside legacy systems, as well as incorporating the technology into business processes. But the overall responses to the report show that the benefits of adopting machine learning exceed the challenges.

There are also signs that the regulatory framework governing the use of machine learning, particularly Prudential Regulation Authority and Financial Conduct Authority regulations, may need to be revised as close to half of respondents say these constrain machine learning. A further 25% of financial services firms say that a lack of clarity in the regulations is limiting machine learning development.

Image Source: George Rex