The AI Book

CHAPTER 68Deep Learning and Financial Regulation

By David Coker¹

¹Senior Lecturer Finance and FinTech, University of Westminster

FinTech is driving massive change in financial services. On the surface we see innovative consumer-focused services such as smartphone banking, chatbots and peer-to-peer lending. But the changes wrought by FinTech are even more widespread and often hidden. Over the next decade and beyond, FinTech will disrupt almost every aspect of banking.

However, even as FinTech disrupts banking, financial regulation is still using the same paradigm it has for decades. To remain effective, the regulatory function must also be disrupted. Autonomous regulatory agents, or ARAs, are needed to help both regulators as well as financial institutions.

What Do Regulators Do?

Financial regulators are responsible for the public good. As the state is considered the “lender of last resort”, failure of a regulated financial institution may result in costs being paid by the public. Regulators need to ensure financial institutions do not harm the common good.

Harm to the common good can happen in many ways, ranging from mis-selling of financial products to the collapse of a bank or regulated institution. But perhaps the phenomenon most harmful to the common good is financial crises.

Endless Financial Crises…

The history of banking is rife with financial crises, with almost every episode being followed by bailouts and an expansion of financial regulation. The Great Crash of ...