UK Finance's latest must-read blogs

1.AI policy and regulation – a busy agenda for 2024

In this blog, we summarise key regulatory developments over the past year impacting the use of artificial intelligence (AI) in financial services and look at how they will develop over the coming year.

Context: Why talk about AI policy right now???

• Following recent developments, including the public appearance of ChatGPT, and a?zealous race?to develop generative AI from the private sector, there has been a resurgence in interest in AI both in the financial services sector and across the economy.??
• These developments accelerated the public sector’s consideration of AI, too. The Department for Science and Technology (DSIT) published its flagship?AI whitepaper?in the second quarter of the year (building on its 2 years of work on AI policy), and the UK showed global leadership by hosting the successful?AI safety summit?at the start of November 2023.??
• AI can be broadly categorized into predictive AI and generative AI.? Within financial services, the former – traditional machine learning models – has been widely adopted, particularly in risk management and economic crime functions like detecting fraudulent transactions and money laundering. Generative AI (which has initiated the resurgence in interest in AI) has a wide range of potential uses, like crafting summaries of articles, writing code, generating images or generating text that could be used for purposes as diverse as marketing, job descriptions or simply emails. And indeed, there are probably wider applications yet to emerge.?
• A?recent report?from UK Finance and Oliver Wyman, based on a recent survey of UK Finance members, highlights that – although predictive AI has been widely adopted – generative AI’s use is still limited to pilots and proofs-of-concept, and has not yet been expanded to use at scale. Our report also predicts that these applications are likely to spill over to other functions in business to drive efficiency and productivity as the AI systems mature over the coming 18 months and beyond.??
• Despite the excitement brought about by the innovation and diffusion of AI technology, firms and public stakeholders recognize the risks of AI and the need to ensure effective regulation of the technology. Concerns relate to such issues as the risk of biased outputs, the opacity of AI systems, ‘hallucination’ risks, and risks of AI being used for bad purposes, such as ‘deepfakes’ or fraud.?

Read the full blog post by, Sushant Subedi, Digital Tech and Cyber Analyst, UK Finance

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2.Helping households meet the cost-of-living challenges

PRA Group, Inc. is working with UK Finance members and StepChange to help customers across the industry who are concerned about their finances.

PRA Group, Inc., a global leader in acquiring and collecting nonperforming loans, has partnered with the UK’s largest debt charity, StepChange, to identify cost-of-living trends and practical responses to help support households in financial difficulty.

The partnership has been proactive in working with UK Finance members, government, academics and regulators to identify ways to build the resilience of UK households left financially vulnerable by cost-of-living pressures. The main trends and solutions identified at a recent round table meeting are outlined below.

Read the full blog post by Kevin Bowman, Head of Government Relations, UK and Europe, PRA Group, INC

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3.Data as a defence (DAAD) big data and AI: Delivering systemic cyber resilience

We live in a more complicated and interwoven world. The risk of a systemic event is becoming more likely; AI, economic events, geopolitics and the proliferation of cyber-attacks mean that it's not a question of if we see a systemic event, but when.

The Current Landscape - Now or Never

The list of risks is many, and to quote Jamie Dimon "Now may be the most dangerous time the world has seen in decades”, bank executives across the United States are “climbing the wall of worry”.

Yet, geopolitical events ebb and flow, and whilst important, the world consensus is (in the most part) to work together to defuse incidents so they subside and their risk is contained.

Economic factors are a perpetual cycle of growth, recession, boom and bust that a business should be familiar with; having the appropriate economic levers, experience and controls to navigate.

AI is not an event; the world will not act together to contain it, yet AI directly feeds into these external risk factors. Its rapid development, commoditisation and proliferation will see it settle in the hands of those that choose to operate outside the controls of the global regulatory system. On the contrary, bad actors (state sponsored and private) will utilise AI with the specific objective of weaponising the technology. The state and private sector will accelerate AI investment for fear of losing competitive ground and to gain the rewards that will come with the AI industrial revolution.

Regulation will struggle to keep pace with AI and the pending acceleration in innovation.? AI’s power will grow, cyber “incidents” will become “existential events” for some, with the potential to become “systemic events” for all.

Read the?full blog post?by James Watts, Sector Lead – Banking, Financial services and operational resilience, Armis

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4.???? Three financial crime trends fo 2024 every bank should know

Every January, ComplyAdvantage issues its State of Financial Crime report. Built on a survey of 600 senior financial crime decision-makers worldwide, alongside our experience working with more than 1,000 companies globally, we look at the trends and challenges that will shape compliance in the year ahead.

In this exclusive blog for UK Finance, we share a preview of some of the key findings.

1. Doing more with less: The rising cost of compliance

Banks are facing a more complex financial crime and geopolitical landscape - but compliance budgets are not rising in line with these risks. As a result, decision-makers must find ways to operate more efficiently. Our survey will show a particular focus on two key strategies. The first is targeted investments in new technologies. For example, we are seeing particular interest in artificial intelligence-based (AI) use cases that don’t rely on ‘ripping and replacing’ entire parts of the compliance tech stack. Overlays to existing transaction monitoring platforms that help prioritise alerts based on risk are one powerful way to focus analyst time where it is most impactful.

2. Real-time payments continue to transform the consumer landscape

Open banking continues to take the world by storm through application programming interfaces (APIs) sharing data between financial institutions and third-party service providers to make real-time payments. By 2030, the open banking market is expected to hit $135 billion, with the UK and the EU front and centre. Over 60 per cent of the population was expected to use open banking in the UK by the end of 2023. Our survey will show high levels of enthusiasm for real-time payment programs - very few major UK financial institutions will not have joined one by the end of 2024.

3. Real-time payments continue to transform the consumer landscape

2024 will be a consequential year for regulating AI worldwide, with national governments and international bodies publishing a range of frameworks. Our survey will highlight some early tensions between financial institutions and regulators in this regard. Some banks are, for example, comfortable compromising the explainability of AI models in exchange for greater automation and efficiency. This creates potential tension with regulators, who have emphasised the importance of clear audit trails. It could also generate challenges with banks’ customers, who will increasingly want to know where and how AI models have been used to make decisions about the financial services they can access. Again, our survey will suggest many financial institutions are not prioritising this element of the customer experience.

Read the?full blog post?by Iain Armstrong, Regulatory Affairs Practice Lead, ComplyAdvantage

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