Individual

Society

Environment

Markets

Considerations for Investors

Software, algorithms, and AI are now central to the sector, automating key functions like lending decisions, insurance underwriting, investment recommendations, and customer service interactions. While this brings significant efficiencies, such technologies risk perpetuating systemic biases, can enable predatory practices, and threaten workforce displacement if not implemented carefully. Proactive ‘ethics-by-design’ policies, extensive impact audits, employee training, and cross-industry collaboration on technical standards will help enable successful implementations, lower compliance risks, and maintain societal trust in the sector. By embedding ethical considerations into research, design, and governance, responsible firms can distinguish their brands, attract top talent, and future-proof against regulations. A responsible approach to emerging technologies serves as both a risk mitigation and value creation opportunity.

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Creating Future Us is the Not-for-Profit arm of Paradigm Change Capital Partners LLP

Financials - Individual

The key individual impacts of concern for investors are:

 

Manipulation: Granular behavioral profiling could enable predatory targeting of vulnerable groups if software use lacks oversight. An overreliance on automated advisors risks promoting unsuitable financial products to customers unable to judge complex needs.

 

Discrimination: Algorithmic decision-making systems risk perpetuating historical biases if flawed data, illegal variables, or unjust proxy assumptions are not proactively audited and removed through regular impact assessments.

 

Job Losses: Workforce automation using AI, predictive analytics, and algorithms threatens jobs, primarily on the operational side of the sector.

 

Accessibility: Ensuring physical touchpoints like branch interfaces, ATMs, and wealth advisory kiosks accommodate customers and employees with disabilities through inclusive design supports financial inclusion commitments.

 

Unless the above are proactively addressed, potential ramifications include:

 

  • Lawsuits, fines, and erosion of trust if AI-enabled tools like credit decisions or insurance pricing contain discriminatory biases.
  • Reputational damage if innovative practices are perceived as predatory or discriminatory toward vulnerable groups.

Financials - Society

The key societal impacts of concern for investors are:

 

Security: Outdated terminals and inadequate encryption on transaction hardware pose data theft and integrity vulnerabilities, as does the aggregation of customer financial data on cloud platforms. Financial institutions can prioritize upgrading endpoint security, ensuring effective encryption, access controls, redundancy, and resilience measures.

 

Privacy: The collection of vast amounts of customer financial data across digital services necessitates stringent consent protocols, anonymization procedures, and access controls to prevent abuse or unauthorized surveillance. Centralized ‘data lakes’ create systemic risks as a single cloud breach could expose millions of sensitive customer records.

 

Unless the above are proactively addressed, potential ramifications include:

 

  • Increased regulatory burden due to innovative digital technologies in the sector.

 

Reputational damage caused by a lack of transparency around algorithmic decision-making processes affecting access to credit or financial services

Financials - Environment

The key environmental impacts of concern for investors are:

 

Energy use: Optimizing the energy efficiency of physical facilities like offices, retail outlets, and data centers helps reduce the sector’s environmental footprint.

 

E-waste: The short lifecycles of consumer devices like payment cards, POS terminals, and tablets can lead to substantial e-waste, if circular models are lacking. Further digitization may help the sector bring down the amount of e-waste.

 

  • Unless the above are proactively addressed, potential ramifications include:
  • Compliance burdens and costs associated with retrofitting outdated legacy systems to meet new regulations.
  • Reputational damage and loss of consumer trust if companies are seen as “greenwashing” – about practices like recycling e-waste.

Financials - Markets

The key market impacts of concern for investors are:

 

Market security: Software intricacies increase points of failure. Rigorous stability testing identifies vulnerabilities that could cascade across global financial systems if risks are overlooked.

 

Market volatility: Sub-second algorithmic trading dynamics enabled by software leave financial markets susceptible to volatile swings if risks like asymmetrical liquidity, feedback loops, and faulty logic are not preemptively assessed. Careful monitoring is essential.

 

Data responsibility: The stringent governance of external analytics partners and data brokers reflects duty of care over harm, which is essential to prevent from negligent or criminal data handling. Vendor audits enable accountability.

 

Transparency: A lack of visibility into opaque algorithms, data practices, and predictive models that are used to automate decisions reduces accountability and due process. Providing accessible options to review automated advice suitability, contest unfair decisions, control data sharing, and report concerns enhances user agency over systems.

 

Market manipulation: The collection of immense quantities of investor data, including accounts, transactions and communications, risks abuse and unauthorized monitoring if oversight safeguards around permissible surveillance are unclear or inadequate.

 

Unless the above are proactively addressed, potential ramifications include:

 

  • Monetary losses from cyber threats exploiting digitized systems.
  • Failure to comply with evolving regulations on issues like data privacy, AI, and responsible innovation.

 

Market volatility and risks caused by AI-based trading system.