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Australia’s corporate regulator has placed at the top of its agenda the regulation of artificial intelligence development in the financial markets amid the “new and different ” risks attached to the quickly evolving technology, partly driven by the fear of being “left behind”.
In a recent speech at a financial markets forum, Australian Securities and Investment Commission (ASIC) chairman Joe Longo made it clear that oversight of AI is crucial to the integrity of the financial ecosystem.
“I want to take this opportunity, as an aside, to emphasise that ASIC has AI as a high and important priority,” he said. “Not just in regards to wholesale markets, but also its role in – and for – the whole economy, including consumers and small business.”
“There is a very real danger here that entities may rush too quickly into innovations without applying appropriate controls and property governance,” he warned, highlighting risks of negative disruption, learned market abuse, misinformation, discrimination, and bias.
Market Players Urged to Uplift Control over AI
Among the others, Longo singled out generative AI, or algorithms capable of generating new content, as the main concern.
“Recent developments, especially in the field of Generative AI, represent a step change and potentially create new and different risks and issues,” he said. “The speed at which things are changing also seems to be accelerating.”
Longo also urged the market players, including hedge funds, banks and traders, to do their part by not increasing their AI usage at the expense of controls.
“Just because the technology has changed, nobody should think that means your existing obligations around good governance have changed with it,” he said.
“There must be an important focus on controls alignment with innovation. Our expectation is for appropriate controls to be part of the design phase and in place before new tech is switched on.”
Regulations Proposed to Catch up with AI
The firm message from ASIC came as the Australian government is scrambling to fill the gaps in existing laws to catch up with the new forms of AI.
While the existing privacy, consumer protection, copyright, and other laws have covered AI, there are no targeted regulations as yet, other than an ethics framework for “responsible” AI released in 2019.
In early June, Industry and Science Minister Ed Husi released a discussion paper, ‘Safe and Responsible AI in Australia’, along with a research paper on generative AI commissioned by the National Science and Technology Council (NSTC), seeking input on governance measures.
“While Australia already has some safeguards in place for AI and the responses to AI are at an early stage globally, it is not alone in weighing whether further regulatory and governance mechanisms are required to mitigate emerging risks,” the discussion paper said.
The research by NSTC shows that generative AI technologies “will likely impact everything from banking and finance to public services, education and creative industries” in the near term, although the full risks and opportunities of AI are still difficult to predict.
The discussion paper also indicates that Australia will have to keep close to overseas developments on regulation.
“Our ability to take advantage of AI … will be impacted by the extent to which Australia’s responses are consistent with responses overseas,” it said.
The paper lists possible options for regulating AI, including “risk-based” classification systems being drafted in the European Union, which will rate AI tools and impose tiered levels of restrictions based on their potential impacts.
The paper also leaves open the option of implementing “sector-specific ” laws or standards, along with adjustments to “general” regulations.
When it comes to the governance of AI in the financial sector, the ASIC chairman also flagged that the regulator is considering both expanding and updating the existing rules.
“In the next financial year, ASIC expects to consult on expanding automated order processing rules to futures markets to reflect developments with AI. We are also planning to update our electronic trading guidance for the same reason,” he said.