According to the Financial Conduct Authority (FCA) head, financial services are getting prone to AI frauds.
Chief Executive of FCA, Nikhil Rathi, warned of considerable problems in the financial services sector in the wake of AI frauds like the deep fake video of personal finance campaigner Martin Lewis endorsing an investment scheme.
Rathi said that now that the government has made the nation’s AI facilities open to firms looking to test the latest innovations, the responsibility of FCA in financial data protection and prevention of financial frauds had increased.
According to the Annual Fraud Report released by UK Finance, Britain lost more than £1.2 billion in frauds in 2022, and 80 per cent of it happened online.
Acknowledging that artificial intelligence has the potential to disrupt financial services like never before, the FCA underlined how it would act against AI frauds.
The FCA thinks that financial services firms can innovate and strengthen market integrity so that it won’t regulate firms but only occasionally help them with new rules and guidelines.
FCA will only regulate Critical Third Parties that underpin financial services, affecting the confidence and stability of the market.
He further highlighted how the intraday volatility has increased compared to the 2008 financial crisis. The FCA has found that intraday volatility has nearly doubled, suggesting that traders are using automated strategies in short-term trading across markets and asset classes.
Rathi identified critical areas of AI fraud, including a highly enhanced and sophisticated nature of identity fraud, more resilient cyber-attacks, and cyber frauds. To counter these issues, investments in cyber resilience and fraud prevention must speed up at the same rate, said Rathi.
The FCA will provide full support in developing innovative and proportionate ways of protection. It will also assist firms regarding AI models so that they can instil faith regarding their system by explaining how the AI models work in protecting customers, especially when things go wrong.
