Artificial Intelligence: Regulation and Expanding Role in Asset Management
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Ali Curi: Markets ConversatION is an ION podcast where we discuss topics of importance to capital market participants with product owners, subject matter experts, and industry leaders. 

Adrian Turton: AI can analyze data and make decisions in milliseconds, enabling it to take advantage of small fluctuations in the market that a human counterpart might not see or have time to act upon.

It also takes human emotion away, allowing decisions to be made purely on the data available rather than from greed or ego or any other human emotions. 

Ali Curi: Hi everyone, and welcome to Markets ConversatION. I'm Ali Curi. On today's episode, Adrian Turton from ION's Asset Management will discuss how AI's role in asset management is improving decision making, driving efficiency, and we'll talk about the challenges of regulation and data privacy.

He'll share with us his take into the future of AI and finance, and offer practical advice for asset managers adopting this technology. 

Let's get started. 

Hi, Adrian, welcome back to the podcast. 

Adrian Turton: Hi, Ali. It's great to be back. 

Ali Curi: Adrian, let's learn a little bit more about you. Tell us a little bit about your background and what you're doing now at ION.

Adrian Turton: I've worked on the business side in both buy and sell side teams from front to back office before moving into technology, specifically trading and compliance systems. I'm currently part of the product management team for asset management products at ION. 

Ali Curi: All right, Adrian. Now let's talk about AI and finance in particular asset management.

You wrote an article on how AI, artificial intelligence, is transforming asset management. Let's start with you sharing an overview of how AI has started reshaping the asset management industry. 

Adrian Turton: Sure. The area that's been quickest to take up this new technology is algorithmic trading. Algo trading has been a major part of trading strategy for many years and has historically been based on predefined rules and indicators as inputs to determine possible outcomes.

The introduction of AI into the area is significant, mostly because it can analyze huge amounts of data across multiple data sources very quickly, providing a means to identify patterns that human analysis might miss and enable autonomous decisions on the fly, based on its analysis. 

Ali Curi: Great. One of the major promises of AI is enhancing decision making. What key trends do you see in the integration of AI within asset management? 

Adrian Turton: I agree with you that one of the major benefits of AI is to automate the decision making process for repetitive scenarios, such as algorithmic trading, which we were just talking about. AI can analyze data and make decisions in milliseconds, enabling it to take advantage of small fluctuations in the market that a human counterpart might not see or have time to act upon.

It also takes human emotion away, allowing decisions to be made purely on the data available rather than from greed or ego or any other human emotions. The essential part that feeds into this is data. AI runs on data and can only make informed decisions when the data is accurate, like humans making real-life decisions.

Bad data leads to bad decisions. And so we see a trend in the whole financial industry to improve data quality and coverage. 

Ali Curi: Now, despite these advancements and argument that we often hear is that the human touch is still critical, especially when it comes to interpreting data and making final decisions. How do you see the AI / human collaboration in asset management? And what do you think the balance is? 

Adrian Turton: Human touch is the factor that makes AI work in the industry. Without it, AI will continue to make the same decisions it has been told to previously, unless fed new data or new decision making parameters. I think that human interaction will always be required, especially in a complex environment, such as algo trading, where the data and approach to solutions change so rapidly.

A human is needed to teach AI how it should behave and to intercede when necessary due to issues and changing market conditions. 

ION Ad: This episode is brought to you by ION. At ION, our asset management solutions automate your compliance, order management, and trade processing with customizable technology that grows with your business. Gain real time insights for fast, accurate decisions, all while reducing costs and enhancing security with ION Cloud Hosting. 

To learn more, visit us at iongroup.com/markets or email us at markets@iongroup.com. 

Ali Curi: Great, now let's talk about regulation. With rapid AI adoption often comes to need for regulation.

What are some major regulatory challenges surrounding AI in asset management right now? 

Adrian Turton: There are concerns about data, privacy, decision, bias, and safety. Data privacy concerns are obvious and similar to other technologies used today. Collection and storage of large amounts of data from various sources are prone to security leaks and this needs to be addressed.

There are also concerns about bias when allowing AI to make decisions as those decisions are based on the inputs from a human user who may have their own interests. Some trading algorithms can be a little "black box" in nature, meaning that it's unclear how the decision was made by the AI to somebody looking at the decision.

Safety concerns are really around how much risk an AI system poses to an industry. The higher potential risk, the more checks and balances required to mitigate them. 

Ali Curi: Now, you previously mentioned data. We know that AI thrives on data, the more it has, the better it performs, but it also raises the concerns of privacy as you addressed earlier, how is the asset management industry addressing these issues?

Are there any specific regulations in place to ensure that data is being used responsibly? 

Adrian Turton: Well, I think AI has always been a contentious subject, partly fueled by the many sci-fi books or shows and films that depict AI becoming self-aware and taking over the world. The reality, at least at the moment, is that AI is another tool that can be useful if it's used in the right way.

There are obviously data concerns. That's not a new thing, nor is it restricted to AI in our world of connectivity. Everything we do on the internet is recorded somewhere and that data can be accessed. So the idea of security in data is not new. The issue from an AI perspective is that it can access all the data that it's permissioned to, and also any data that's fed to it by users.

A good example of that is ChatGPT. It not only has access to all the data it was trained with, but also any information that users feed into it to make it work for them. This could be problematic and the AI creators are well aware that the issue exists and are working to address it. For the asset management industry, this is particularly important as the requirement to protect client data is paramount.

From a regulatory standpoint, there are many different approaches to regulating AI. The EU became the first to ratify a comprehensive act into law on the 1st of August 2024, specifically for AI, using a risk-based approach from minimal risk to unacceptable risk. The UK has stated that it does not feel there is a requirement to introduce a broad, risk-based approach like the EU.

Instead, it expects the current industry bodies to integrate it into their existing frameworks. The United States hasn't implemented comprehensive AI regulations yet, but a similar risk-based approach has started to appear through some states and individual agencies. 

Ali Curi: Well, it is a concern that the United States has not implemented any comprehensive AI regulations.

Let's stick with that topic for a little bit of, of data privacy and ethical concerns. What can you tell us about what financial firms should consider when integrating AI technologies? 

Adrian Turton: I think there's three main areas that should be the current focus when trying to integrate AI. The first is data accuracy. The input needs to be accurate to enable good decisions to be made by the AI.

The second one is data protection. We need to ensure the same protection as is expected elsewhere in the business. For example, GPDR, including data retention, opting out, and personal data. The third is decision transparency. We need to make the decision making process as transparent as possible so that it's clear how the AI made each decision.

Ali Curi: Adrian, this is an exciting time because of the many uses AI promises. So looking ahead, where do you see AI taking the asset management industry say in the next decade? What innovations or disruptions should we be paying attention to in the near future? 

Adrian Turton: I agree with you. We do live in interesting times.

I think the first, as we've discussed is algo trading. Although AI has already transformed the algo trading space, I think that will continue and it will continue to add value, allowing more complex trading in smaller timescales to become the norm. The second is risk management. I think that AI will become more prevalent in the risk management space, as it is a perfect tool to monitor portfolios and identify risks in real time.

The third is portfolio optimization, which is another area where AI can analyze customer requirements, creating and managing customized solutions. The fourth area is alternative data. Due to its ability to analyze large amounts of data quickly, AI could use alternative data such as credit card transactions or satellite imagery to gain insights into industries to help identify undervalued assets or predict future market trends.

The fifth area is repetitive tasks. AI can automate time consuming repetitive tasks, such as report creation to free up portfolio managers time so they can focus on client relationships and strategic decisions. 

Ali Curi: Now what advice would you give to asset managers looking to adopt AI driven approaches? What is the one big thing you hope listeners will take away from this episode?

Adrian Turton: AI is a valuable tool that can give businesses a boost and an edge in a market where timeliness is becoming a more and more important factor. AI should be embraced, but with a solid approach to data from both an accuracy and security perspective. It isn't a silver bullet that will solve all of your problems, but it is an essential tool that should be used responsibly to empower human professionals to make better investment decisions.

Ali Curi: Adrian, thank you so much for sharing your insights with us today. But before we go, a quick sidebar question, what advice is at the top of your list when you're mentoring someone? 

Adrian Turton: That's a good question. I think it would be that relationships are key. That means not only with your clients, but also the people you work with at all levels.

Everyone you meet is valuable. It doesn't matter what their title is or their seniority in the company. Treat everyone with respect and you will find your own respect in return. 

Ali Curi: I think that's some great advice. Adrian Turton, it's been a pleasure. Thank you for joining us again. 

Adrian Turton: Thanks for having me, Ali. It's always great to speak to you. 

Ali Curi: And that's our episode for today. You can follow ION Markets on X and on LinkedIn. 

Thank you for joining us.