Financial advisers urged to approach AI adoption with caution, FMA report says

Financial advisers must adopt a cautious and risk-focused approach when integrating artificial intelligence (AI) into their operations, according to a new report by the Financial Markets Authority (FMA).

Friday, September 13th 2024, 7:21AM

The report emphasises the need for strong governance frameworks and robust risk management to ensure responsible AI use, particularly as the technology continues to evolve rapidly.

The FMA's report, titled "Understanding Artificial Intelligence in Financial Services," highlights AI's potential to enhance customer outcomes and improve operational efficiency in the financial sector.

However, it warns that these benefits come with significant risks, such as data privacy breaches, algorithmic bias, and cybersecurity threats.

For financial advisers, the key message is clear: adopt AI responsibly and transparently, ensuring that all AI-driven decisions are fair, unbiased, and aligned with regulatory requirements.

The report draws on insights from 13 financial institutions, including asset managers, banks, insurers, and financial advice providers, all of whom are either already using AI or planning to do so.

The findings reveal that while AI offers promising tools for fraud detection, customer service enhancement, and data analytics, a cautious approach is vital. Most firms reported taking proactive steps to identify and mitigate risks, such as setting up dedicated AI governance subcommittees, conducting independent audits, and providing extensive staff training.

For financial advisers specifically, the FMA underscores the importance of adequate training and transparency.

Advisers must be well-versed in AI technologies and ensure that their clients understand how these tools are used in providing advice and managing investments.

The report also recommends that advisers remain engaged with ongoing regulatory developments and industry standards to navigate the rapidly changing landscape effectively.

Looking ahead, the FMA plans to host an industry roundtable later in the year to further discuss AI's use in financial services and explore best practices for managing associated risks. The FMA says it is commited to a technology-neutral and pro-innovation stance that fosters innovation while safeguarding consumer interests.

Tags: FMA