In November 2022, OpenAI launched its chatbot ChatGPT, which became an overnight sensation- gaining over one million users in just five days! Artificial Intelligence (AI) has been a part of our world for some time now, however, ChatGPT has seemingly brought with it the kind of disruptive technology that, depending on where you stand, promises, or threatens to transform our way of life. In this article we will explore the definitions, applications of AI in finance, and end with a global view of trends around the regulation of AI.
Before we can identify the current trends in the regulation of AI, it is helpful to understand what it is. According to the Oxford Dictionary, artificial intelligence is:
“The theory and development of computer systems able to perform tasks that normally require human intelligence, such as visual perception, speech recognition, decision-making, and translation between languages”- The Oxford Dictionary of Phrase and Fable (2 ed.)
Essentially, AI machines can act on data through statistical analysis, remember behaviour patterns and adapt their responses to conform to those behaviours or encourage changes to them.
ChatGPT (Generative Pre-trained Transformer) on the other hand, can be described as:
“An open-source, end-to-end dialogue system built on top of the GPT-3 language model, designed to enable developers to quickly build and deploy conversational AI agents for chatbots, virtual assistants, and other interactive applications. It is so named because it is powered by the GPT-3 language model, which is a powerful natural language processing (NLP) model that can generate human-like text from a few words of input.”- Birch, 2022
AI Applications in Finance
Over the years, AI has been integrated into our daily lives, exemplified by maps and navigation, facial detection and recognition, search and recommendation algorithms, social media, and e-payments amongst many use cases.
With regards to the financial services, AI has been employed in four categories:
- Fraud detection and compliance
- Credit risk analysis
- Chatbots and robo-advisers
- Algorithmic trading
ChatGPT has ignited an even greater interest in AI given its ability to be widely used in finance outside of simply being a chatbot. In recent months, it has been reported that ChatGPT has been used by both providers of financial services to automate a significant amount of customer support services, as well as in financial data analysis to make more informed investment decisions. However, one of the challenges highlighted by the Economic Times is that “ChatGPT has no real knowledge of the correctness of its answers, it can emit responses that sound reasonable, but when validated turn out to be non-sensical or false.”
Trends in Regulation of AI
In addition to the uncertain knowledge around the capabilities of ChatGPT, we have seen several instances where AI has proven harmful to humanity. For example, AI trained on datasets containing racial or gender bias has been found to unfairly discriminate against certain groups of people. It has also severely affected marginalised groups of people- raising the need for regulation.
Regional blocs and countries are still coming to terms with how best to regulate such a rapidly transforming industry but here are some examples of what we are seeing:
- In the United States of America, the National Institute of Standards and Technology (NIST) has developed a framework to better manage risks to individuals, organizations, and society associated with artificial intelligence. This is called the “AI Risk Management Framework (RMF)” was released on the 26th of January 2023.
- In Europe, the European Union (EU) has proposed the EU AI Act, which would be the first law on AI by a major regulator anywhere. The law aims to assign applications of AI into three risk categories to manage the regulatory processes.
- In 2022, the African Union had begun developing the African Union Artificial Intelligence Continental Strategy for Africa.
- In South Africa, the government has established the President’s Commission on the Fourth Industrial Revolution (PC4IR). The Commission will investigate how the technology will benefit the country and advise regulatory bodies on AI law.
- Botswana, Egypt, Mauritius, Tunisia, and Zambia have also adopted national AI law strategies
Even though we are still in the early stages of understanding the extent to which AI platforms such as ChatGPT will transform our lives, what is becoming apparent is the need for regulatory oversight to ensure that all members of society benefit from the opportunities presented by AI, and are also protected from the risks of rapid technological transformation.