ASIC: AI is ‘high and important’ priority

Artificial intelligence (AI) remains high and important priority on the Australian Securities and Investments Commission (ASIC’s) agenda in regards to the role it is expected to play both in wholesale markets and whole economy, including consumers and small business.

Speaking at the ISDA/AFMA Derivatives Forum in Sydney, ASIC’s chair, Joe Longo, encouraged financial industry organisations to “help lead through change” by accelerating collaboration and work together at two important areas of collaboration: transparency and tech.

He stressed an important role of AI in the markets and that it was an “area of rapid change and expansion”, representing a step change and new and different risks and issues, however, he reminded that financial markets had been at the forefront with algorithmic trading and using AI in electronic markets for over a decade.

“To be clear, my and ASIC’s interest is – and will always be – the safety and integrity of the financial ecosystem. As with any new technology, to the extent that AI affects that ecosystem, to that extent we will be involved. As we realise the potential of tech, we have to do all we can to avoid negative disruption, learned market abuse, misinformation, discrimination, and bias – whether intended or unintended,” the ASIC’s chair said.

He also warned of “a very real danger” that some entities may be rushing too quickly into innovations, trying to avoid the fear of being ‘left behind’, without giving enough consideration to applying appropriate controls and proper governance.

“With this in mind, entities need to focus on robust governance and operational resilience measures. This is nothing new – just because the technology has changed nobody should think that means your existing obligations around good governance have changed with it. They haven’t. But it’s all too easy to forget this in the face of such rapid and unprecedented change,” Longo said.

At the same time, the use of AI within organisations along with the tools and their implications need to be understood and can be explained.

“The point is, the fear of missed opportunities cannot be allowed to drive poor decisions, outcomes, or controls. While the potential in this field is enormous, our vigilance must be unwavering. The industry will look to you to lead the way,” he added.

“Our expectation is for appropriate controls to be part of the design phase and in place before new tech is switched on. It’s important that the whole financial market ecosystem works to uplift controls – just as a convoy must go at the pace of its slowest vessel, so too is the financial ecosystem reduced to the strength of its weakest link.

Following this, ASIC will consult on expanding automated order processing rules to futures markets in the next financial year to reflect developments with AI and plans to update its electronic trading guidance.

It will also continue to scan the environment to understand how AI is being applied as well as risks and opportunities attached to those methods.

The regulator will also look at other developments in the space such as crypto tech – digitisation of assets, carbon markets, FX and lending.