How can RegTech companies ensure their use of AI is done in an ethical way?

September 9, 2020

Many RegTech ventures use artificial intelligence, but when they do it is essential that they do so in an ethical way.

The idea about artificial intelligence is older than what you may think. Today, the phrase is commonly used to describe the complicated algorithms in our smartphones, Apple watches and computers that make them work as intended, enabling them to play music tailored to your taste, boost payment security and noticing if your heart is beating irregularly.

However, the idea of man-made intelligences has been a common staple in human storytelling for years. Greek mythology had Pygmalion who fell in love with one of his sculptures, Mary Shelly had Frankenstein’s monster and Jewish folklore had its golems.

Closer to our days, we have the Czech playwright Karel Čapek’s play Rossumovi Univerzální Roboti, or Rossum’s Universal Robots as it is known in English. The play is, by the way, where the modern word robot comes from, derived from the old Church Slavonic word, robota, meaning, servitude, forced labour or drudgery.

In many of these old stories, the human-created intelligence tend to rebel, with catastrophic consequences for its creator. Often, these rebellions are the fault of the innovator.

Nevertheless, while the examples above belong to the world of fiction, rapid technological developments in the last century have slowly brought the envisioned risks into the real world.

AI is everywhere today. But even though the general AI controlling the Arnold Schwarzenegger killer robots from The Terminator franchise is still some ways off, there are reasons to be concerned. AI is used for an uncountable number of tasks such as estimating people’s credit scores, tracking their legal compliance efforts, deciding how high someone’s bail should be and how high a customer’s insurance premium should be. In a world like that, a mistake could prove catastrophic.

And often, just like in the stories, the faults of the machines are due to the miscalculations of their creators. That was one of the key points in a recent talk held by Brian Clark, founder and CEO of RegTech startup Ascent. The topic of the conversation was why ethical AI matters in a tumultuous time.

This is of key importance for the RegTech industry where AI is used for everything from ensuring legal compliance to strengthening cybersecurity capabilities. Ascent, for instance, utilise AI to automate compliance for its clients.

“There are a lot steps to analysing laws and regulations, understanding changes [and] reviewing data that are very time intensive and has a lot of human error,” Clark explained. “Instead, we don’t use AI because it’s sexy or because it is good for our marketing campaigns. We use AI because it is a tool that solves our problem [and] it solves it better than humans.”

One issue Clark said businesses must consider is the so-called unity problem, which essentially boils down to what is often seen as the big benefit of AI – that individuals have more power. Even though that means one person can do more good more easily, the reverse is sadly also true. “You [have to] think about [how] one bad actor who can influence a million lives,” Clark warned.

That being said, AI could have considerable benefits, particularly during a raging pandemic. It could automate and secure everything from admin to regulatory compliance, not to mention cybersecurity.

So thinking about ethical AI can prove important for RegTechs. “RegTechs that uses AI technology have an opportunity to embrace AI ethics principles and open standardisation available,” says Dilip Mohapatra, founder, director and chief executive at Cognitive View.

“For example, we at Cognitive View have taken a very transparent approach by developing a Trusted AI capability in our platform that provides full transparency on every decision the AI makes and addresses the AI ethics aspects, including accuracy, fairness, bias. Besides that, human in the loop is an essential element for every RegTech to consider. Risk and compliance has been traditionally very people-driven, and people focussed, so while developing AI-based automation, there is an opportunity to create new processes where both humans and AI can complement each other.”