The Rise of the Machine
There has been an increase in spending by financial services firms on data analytics and machine learning in the last year according to Alex Viall, head of regulatory intelligence at Behavox, which provides surveillance software.
Viall spoke on a panel, Rise of the Machine, at the Misys Connect Forum in London this week. A pool at the forum found that more than half of the attendees’ firm are experimenting with using artificial intelligence and machine learning but few have yet implemented these technologies.
David Weiss a senior analyst at consultancy Aite Group said in a report in July that inorganic intelligence seems to be hitting its mark in 2016, with a few prominent applications and independent software vendors coming to the fore. Aite coined inorganic intelligence to describe the combination and permutation of multiple computational technologies to inorganically solve human problems at a beyond-human scale.
Weiss described potential applications for inorganic intelligence such as trading technology, such as those currently used by Chicago proprietary/principal trading firms. “Such trading strategies have long moved past simple “if/then” methodology to sophisticated machine learning, conditions testing and probing, simulation, and now cognitive computing,” he added.
Other uses include robo-advisory,risk management and surveillance. Regulators are starting to mandate widespread surveillance in financial services since the 2008 crisis, such as the Market Abuse Regulation in the European Union.
“Such large-scale surveillance inherently must be automated and meets many of the inborn requirements of an inorganic intelligence application,” said Weiss.
Behavox uses analytics and machine learning to review data, include unstructured data such as messages, to detect patterns which may indicate misbehaviour and send alerts to firms’ compliance departments.
“Libor rigging led to clients wanting an automated approach to spotting things before they hit the P&L,” added Viall. “A lot of institutions are seeing the light and realising they should make an investment now.”
Aite’s report, The Dawn of Inorganic Intelligence in Financial Services, said most of its technology components have been around for decades as they have moved from purely theoretical ideas in universities to applications in the real world but the biggest challenge to adoption is human fear.
Denis Ignatovich, co-founder and chief executive of Aesthetic Integration, said on the panel that the financial services industry should follow the example of other industries who already use formal verification or automated reasoning to check software. Aesthetic Integration provides software that uses mathematical techniques to demonstrate the safety of systems that are too complex for humans such as whether a dark pool has been designed in accordance with its published operating rules.
“The avionics industry is using automated reasoning and the US Department of Transportation is using the technique for regulating self driving buses,” Ignatovich added. “Finance should learn from other safety critical industries.”
People also fear being replaced by intelligent machines, which is not unfounded. Viall said: “A lot of manual tasks will be eliminated and jobs are going to go in order to make huge cost savings.”
However the Bank of England said in a blog this month that labour-saving innovations and the debates around around technology are not new. The Bank said: “Queen Elizabeth I [1533-1603] denied a patent for a knitting machine over fears it would create unemployment, Ricardo thought technology would lower wages and Keynes famously predicted a 15 hour working week by 2030. “
The post concluded that technology can lead to workers being displaced in one particular industry, but this does not hold for the economy as a whole, and increased productivity can lead to increased average wages.
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