It is crucial to remain competitive in the finance industry, with many businesses adopting artificial intelligence ( AI ) quickly to lower costs and streamline operations.
The United States Securities and Exchange Commission ( SEC ) accused two businesses of using artificial intelligence, marking the first significant step in the fight against so-called” AI washing,” and two companies recently found themselves in trouble.
Delphia ( USA ) Inc and Global Predictions Inc boasted about using AI for designing investment strategies, but the SEC found their claims to be unsubstantiated.
There is a lot of speculating about AI, particularly with ChatGPT, a relational technology app, shook things up. But amid all the hoopla, AI cleaning is becoming more popular.
Companies may raise the powers of AI algorithms or create the illusion that AI plays a more important role than it really does by exaggerating or misrepresenting their Artificial capabilities.
There are many advantages to including AI into company functions. To help organizations stay away in a market that is constantly changing, it does streamline processes, quickly break down and evaluate difficult data, and help them stay away.
Promoting the use of AI helps to establish a business as high-tech and cutting-edge, even if the truth is unflinching.
The washing machine is n’t entirely new. It follows the similar concept as greenwashing, where firms believe to be ecological- pleasant to attract buyers and consumers.
It involves dressing up regular technology with expensive AI buzzwords such as “machine learning”, “neural networks”, “deep studying” and “natural language” processing to seem more impressive than they really are.
AI and the banking industry
Due to the high stakes, fierce competition, and sensual appeal of technology-driven solutions, Artificial washing thrives in finance and investment.
AI’s techniques can examine sizable datasets, improve predictability, and find out undiscovered patterns in economic data. Additionally, AI’s real-time processing abilities enable fluid adaptation to market changes.
Financial product difficulty allows companies to conceal the truth behind glitzy AI states. Additionally, the absence of rules only makes the issue worse.
Despite AI’s outstanding features, it’s not without its limitations, including moral issues, susceptibility to cyberattacks and exploitation, and the lack of accountability in how AI algorithms arrive at decisions or predictions.
Supporters of AI-related investments range from experienced institutional players to seasoned novice investors.
Venture capital firms last year allocated more money to AI startups than they did before as a result of this interest.
A lack of regulation
But without clear guidelines, firms can exploit loopholes and mislead investors.
The industry’s trust and credibility are undermined by this lack of oversight. AI washing may also stifle innovation. If investors are skeptical about AI, they’re less likely to invest in legitimate AI- powered solutions. This may stifle the development of truly revolutionary technologies.
It is crucial to deal with AI washing, echoing the cautionary tale of the dot- com bubble. The hype surrounding AI capabilities in finance poses the same risks as the exaggerated promises and speculative fervor surrounding internet companies that caused market turbulence and investor skepticism in the late 1990s.
Investors may be forced to invest in AI-related ventures without fully understanding the risks or potential limitations, which could result in financial losses when the bubble bursts.
The European Union AI Act is the first international law to regulate the use, creation, disclosure, and control of artificial intelligence. But in Australia, there are no specific laws. The Corporations Act currently governs regulation.
The Australia Securities and Investment Commission is currently thinking about ways to regulate AI, including imposing fines for AI washing.
Holding companies accountable for accurate information about technological applications helps to uphold financial markets ‘ integrity and promote fairness for investors.
How to spot AI washing
So, how can you, as an investor or consumer, avoid falling victim to AI washing? Here are some tips:
1. Verify registration status and credentials
Verify the investment company’s registration status and credentials before buying or investing in anything that claims AI capabilities by checking the professional register. Ensure they have no disciplinary ]history ] by checking the ASIC register.
2. Be cautious with AI- focused investments
Investing in AI- driven companies may seem promising, but be wary of companies that tout their “revolutionary” or “industry- leading” AI without providing specifics. What exactly makes their AI revolutionary? What problems does it solve? Companies that rely on vague buzzwords without providing specifics are likely to be exaggerating their capabilities.
3. Boost your knowledge
Learn the fundamentals of AI and machine learning. Learn terms and common AI practices used in finance. There are many beginner-friendly resources available online.
4. Ask questions
Do not solely rely on AI-generated data for investment decisions. AI-generated data may contain biased or inaccurate information. Ask businesses and financial advisors about the specific AI implementation they want to use. What kind of data do they collect? How are their algorithms trained? What are the limitations of their technology?
5. Be wary of high returns and little risk.
Be wary of financial products that promise high returns with little risk, especially those that claim to be successful through AI. This tactic is a typical example of AI washing. Before investing, conduct independent research by following the financial news or checking company regulatory filings. Do n’t rely solely on a company’s claims.
Angel Zhong is Associate Professor of Finance, RMIT University
This article was republished from The Conversation under a Creative Commons license. Read the original article.