Artificial Intelligence in Finance: Challenges, Opportunities and Regulatory Developments

Edited by: Nydia Remolina, Aurelio Gurrea-Martinez

 This book provides a comprehensive analysis of the primary challenges, opportunities and regulatory developments associated with the use of artificial intelligence (AI) in the financial sector. It will show that, while AI has the potential to promote a more inclusive and competitive financial system, the increasing use of AI may bring certain risks and regulatory challenges that need to be addressed by regulators and policymakers.

After analysing the technological foundations of AI, the book focuses on the use and regulatory challenges of AI in the banking, capital markets and insurance industries. It also analyses, compares and assesses the different strategies and international approaches that have been adopted to address the challenges raised by the use of AI. The book concludes by providing a holistic and cross-sectoral analysis of the use of AI in the financial sector.

The comprehensive, interdisciplinary, and industry-relevant approach adopted in Artificial Intelligence in Finance will provide students, practitioners and academics interested in financial markets with a broad understanding of the challenges and opportunities of AI in the financial sector. Additionally, the comparative and policy-oriented approach also adopted in the book will provide regulators and policymakers with innovative ideas and regulatory solutions that will help them address some of the most critical challenges associated with a new data-driven financial system.

Contents:
Introduction xvii

PART I. FOUNDATIONS OF AI AND AI GOVERNANCE
1. Foundations of artificial intelligence and machine learning 2
Alfonso Delgado De Molina Rius
2. Explaining explainable AI 19
Richard Zuroff and Nicolas Chapados
3. Harmony in chaos 60
Yeong Zee Kin and Larissa Lim
4. Responsible AI 87
Marcus Bartley Johns, Joy Fuyuno and Dennae Smith

PART II. OPPORTUNITIES AND REGULATORY CHALLENGES OF AI IN THE BANKING INDUSTRY
5. AI governance frameworks for the banking sector 114
Virginia Torrie and Dominique Payette
6. Machine learning, alternative data, and the regulation of consumer credit markets 142
Nikita Aggarwal
7. AI-based consumer credit underwriting 151
Maayan Perel and Ruth Plato-Shinar

PART III. OPPORTUNITIES AND REGULATORY CHALLENGES OF AI IN CAPITAL MARKETS
8. The promises and perils of robo-advisers 178
Aurelio Gurrea-Martinez and Wai Yee Wan
9. Regulating AI trading from an AI lifecycle perspective 198
Alessio Azzutti, Wolf-Georg Ringe and H. Siegfried Stiehl

PART IV. OPPORTUNITIES AND REGULATORY CHALLENGES OF AI IN THE INSURANCE INDUSTRY
10. Opportunities and use cases of AI in the insurance industry 244
Magdalene Loh and Terence Soo
11. Regulation of the use of artificial intelligence for investment in the insurance industry 271
Christopher Chao-hung Chen

PART V. CROSS-SECTORAL ISSUES ON THE USE OF AI IN THE FINANCIAL SECTOR
12. Regulating artificial intelligence in finance and other regulated industries 294
Douglas W. Arner, Ross P. Buckley, Dirk A. Zetzsche,
Brian W. Tang and Lucien J. van Romburg
13. Bias and discrimination in the use of AI in the financial sector 320
Minesh Tanna and William Dunning
14. Interconnectedness and financial stability in the era of artificial intelligence 350
Nydia Remolina