Artificial intelligence is a divisive subject, as the UK’s Bletchley Park AI safety summit on 1-2 November to discuss the risks of frontier AI demonstrates.
While highlighting the opportunities of AI, ahead of the summit UK Prime Minister Rishi Sunak warned “humanity could lose control of AI completely” if the technology was not given proper oversight. Fears have centred on how artificial intelligence could be abused to create and spread misinformation, increase bias within society, help design bioweapons and generate code for cyberattacks.
Concerns that advances in automation could lead to increased unemployment, marginalisation and poverty are also weighing heavy.
Goldman Sachs research estimates that roughly two-thirds of US occupations are exposed to some degree of automation by AI. Of those exposed occupations, between a quarter and a half of their workload could be replaced.
The impact on labour markets may be significant, but it won’t necessarily translate into mass layoffs, the report contends. Instead, most jobs and industries are only partially exposed to automation and will be more likely complemented rather than substituted by AI – enabling employees to spend more time doing more valuable work.
Generative AI can streamline business workflows, automate routine tasks that improve the day-to-day efficiency of knowledge workers, and give rise to a new generation of business applications. Such tools could “drive a 7% (or almost $7 trillion) increase in global GDP and lift productivity growth by 1.5 percentage points over a 10-year period,” according to the Goldman Sachs researchers.
That is the hope. Yet with AI technology and the associated use cases evolving rapidly, and politicians, regulators, business leaders, technology gurus and industry commentators all debating the best way forward, much uncertainty exists. What is clear is that generative and pattern-recognition AI tools are here to stay, and will profoundly reshape the entire investment sector, fund administration included.
Preparing fund administrators for AI changes
How can fund administration industry participants prepare? Future-proofing, to the extent possible, requires a combination of strategic planning, skill development and adaptation to the shifts in market dynamics:
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Embrace AI
AI can help automate routine fund administration tasks, reduce errors and improve efficiency. Invest in research and development, or partner with software vendors that are doing so, to integrate AI and automation technologies into your operations.
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Collaborate and partner
Leverage the expertise of AI developers, fintech companies and other technology providers to innovate and develop new tools and services for clients.
AI can be particularly powerful in delivering better risk assessment and mitigation to protect clients’ investments, and even their identities.
At Deep Pool, for example, we are integrating AI-powered identity verification into our know your customer (KYC) onboarding and monitoring solution to guard against identity theft, impersonations and account takeovers. The technology automatically extracts data from the person’s ID document, conducts facial recognition checks to ensure the person is the same, and performs a liveness check to confirm they aren’t a deep fake simulation. The process takes seconds and definitively confirms whether it is the right person or not.
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Focus on value-added services
A big part of AI’s attraction is its potential to take on mundane grunt work and free employees to devote their attention to value-added tasks. Leverage that capability. Build an environment where staff have the tools and flexibility to provide clients with strategic insights, personalised solutions and expert advice that AI cannot offer.
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Data analytics
AI’s processing speed and power herald the prospect of faster, richer analytics and insights from ever larger datasets. These outputs will enable users to identify market trends, spot errors, make more informed decisions and improve client services.
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Communicate with clients
Educate your clients about the changes that using AI and other advanced technologies in the fund administration process will bring and how they will benefit. Transparency and clear communication about where and how AI can be introduced will help build trust and confidence.
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Be mindful of ethical considerations
Ethical questions continue to dog the use of AI in the financial industry. Address those concerns by adhering to ethical principles and guidelines as they evolve, and ensuring AI is used responsibly and transparently at all times.
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Regulatory compliance and engagement
Use of artificial intelligence in the EU will be regulated by the AI Act, the world’s first comprehensive AI law, which classifies and regulates AI systems according to the risk they pose. Talks with EU countries in the European Council on the final form of the law have begun, with hope for agreement by year-end.
The US is still assessing which aspects of AI require new regulation and what is subject to existing statutes. President Biden though has issued an executive order that compels businesses developing AI models that pose a threat to national security, economic security or public health to notify the government and share their safety test results.
At some stage further regulation/legislation appears inevitable. Firms should engage with regulatory bodies and industry associations to contribute to the development of AI-related regulations and standards. And as regulatory requirements related to AI in the funds administration industry evolve, firms will need to stay up-to-date with the changing rules and best practices to ensure their operations comply with industry standards.
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Enhance data security
As AI is progressively engrained in industry processes, data security becomes vital. Invest in robust cybersecurity measures to protect sensitive financial data from cyber threats and breaches.
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Monitoring and feedback
AI hallucinations – where a large language model (LLM) creates nonsensical or inaccurate outputs – remain commonplace. AI models trained on biased or unrepresentative datasets are a particular source of hallucinations. ‘Black box’ algorithms can exacerbate AI shortcomings.
To counter such problems, firms should continuously monitor the performance of AI-powered systems. Gather feedback from clients and make improvements as necessary. This helps the technology remain aligned with client needs and expectations.
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Continuous learning and skill development
AI is still in the early stages of development, with more powerful and widespread applications emerging all the time. Disruption to existing processes and work patterns will be profound.
Staying up-to-date and as prepared as possible for future change is vital. Encourage employees to acquire new skills and knowledge. And invest in training programmes to help them adapt to the emerging technologies and practices.
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Long-term vision
Amid the day-to-day buffeting of client demands, it is easy to become reactive to change. But with AI and wider technology use cases evolving fast, you can soon fall behind industry best practices and client expectations.
Plan for ongoing evolution and adaptation by developing a long-term strategic vision that includes AI-driven technology solutions as integral components of your business model. It will help your business adapt to and thrive in an increasingly tech-dependent fund administration environment.
Ultimately, the key to fund administration success lies in understanding your business, doing the fundamentals well and adding value. Leveraging the right mix of technology tools, including AI, will allow you to focus on performing those tasks you do best.
ABOUT DEEP POOL
Deep Pool is the #1 investor servicing and compliance solutions supplier, providing cutting-edge software and consulting services to the world’s leading fund administrators and asset managers. Our flexible solution suite, developed by an experienced team of accountants, business analysts and software engineers, supports offshore and onshore hedge funds, partnerships, private equity vehicles, retail funds and regulated financial firms. Deep Pool is a global organisation with offices in Dublin, Ireland, the United States, the Cayman Islands and Slovakia. For more information, visit: www.deep-pool.com.