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AI could spark future financial crisis, says think-tank

By Marianne Curphey
November 8, 2019, 2:33 PM GMT

    Proliferation of AI trading programmes could cause a meltdown in a market event causing widespread panic

    The proliferation of AI-based systems might lead to massive amounts of data falling into the wrong hands, or widespread disruption of vital services, a new report warns.

    There is a greater risk as artificial intelligence increases data collection and aggregation, according to the Centre for the Study of Financial Innovation (CSFI). The paper also asks whether AI could contribute to a future financial crisis.

    “This is a highly speculative question, but it is starting to be raised and is worth exploring,” the report says. “One trigger might be a particularly sharp ‘flash crash’, where many interconnected AI trading programs react in the same way to some market event.”

    CSFI, a non-profit think-tank, acknowledges AI’s benefits for efficiency and cost saving. It adds that AI does not just mean faster computing, but major changes to financial services infrastructure.

    “A brand new suite of technologies, centred around ML [machine learning], will change financial services in fundamental ways – both in terms of efficiency and new capabilities,” it says. “The scale of this transformation could swiftly match or surpass the impact that IT has had on the industry over the past few decades.”

    Potential benefits of AI-based systems include lower costs, lower error rates, and more personalised services that are accessible all the time, according to CSFI.

    The risks include lack of transparency around decision-making as well as risks to consumer protection and how personal data might be used.

    FURTHER READING: AI could boost economy global by US$14 trillion

    FURTHER READING: US Post turns to AI for speed

    Tokenised securities are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how tokenised securities and leverage work and whether you can afford to take the high risk of losing your money. Nothing in the above article should be regarded as a recommendation to trade generally, to trade on a particular platform or to trade in a particular asset. Asset prices can go down as well as up and past performance is not a guide to future performance. Investors and traders should thoroughly research an asset or strategy before making any trading or investment decision and if necessary seek professional advice.

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