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Financial regulators bolster AI engagement
Responding to OECD's call, markets embrace innovation to enhance monitoring systems and risk protection amid Covid-19
17 Dec 2020 | The Asset

As Covid-19 rages on, financial markets continue to lurch from unpredictable to turbulent, and every shade in between.  As early as March 2020, the Organization for Economic Cooperation and Development (OECD) noted widespread and unprecedented market volatilities.

In a report entitled “Global financial markets policy responses to COVID-19”, the OECD says “stock markets have declined over 30%, implied volatilities of equities and oil have spiked to crisis levels, and credit spreads on non-investment-grade debt have widened sharply as investors reduce risks”.

 “The global financial crisis underlined the importance of comprehensive and coordinated efforts – within and across countries – to ensure business and market confidence is restored. As the impact of Covid-19 erodes market and business confidence, financial authorities are encouraged to implement early and ambitious policy responses in their respective jurisdictions,” it adds.

Responding to the call, financial regulators have led the search for innovation as effective market surveillance technology remains a major issue in capital markets. Around the world, stock exchanges are using monitoring systems that are still generating a high level of false positive alerts, thus requiring substantial manual intervention.

In Israel, a hub for financial technology and innovation, the national securities regulator selected five fintech companies to participate in its Data Sandbox pilot programme. Part of the Israel Securities Authority’s (ISA) Fintech Innovation Hub, which was established in 2018, the programme is designed with an emphasis on public sector collaboration to help meet the real-world needs of the industry.

In November, Hong Kong’s Securities and Futures Commission signed an agreement with the ISA for financial technology cooperation.

Private investors have taken note, with leading market research firm Gartner reporting that a quarter of IT professionals have upped levels of investment in artificial intelligence (AI) in light of Covid-19, with 75% planning to commence new AI projects in the first two quarters of 2021.

One such company benefiting from this increased interest in AI is Israeli startup Fintica AI, whose technologies have honed capabilities to identify anomalies and detect fraud while improving risk protection and market event classification.

Its customers are capital market stakeholders and compliance teams, whom it seeks to arm with efficient ways to make sense of the massive market data generated.

“Covid has increased the risks from so many angles,” explains Fintica chief executive officer Philippe Metoudi. “People are working from home, away from secure servers, money is moving in irregular fashions as companies and individuals have different needs. Efficient use of AI will separate those that survive from those that fall foul of this very turbulent period for the markets, and for all of us.”

The OECD has warned that countries would be required to provide urgent fiscal support to viable businesses, noting that “understanding current market fragilities, paths of market contagion, and policy implications calls for a sober assessment of the changing structure of global markets and financial intermediation in the post-crisis era”.