AI in Investment Management: Technology Working Group’s Final Report

On 10 October 2024, the Technology Working Group to the HM Treasury's asset management taskforce published their third and final report (the Report) in collaboration with the Investment Association (IA). While the first two reports focused on fund tokenisation; this report turns to AI, exploring how it can be utilised for new opportunities across the investment management sector. 

What does the report recommend? 

The Report sets out seven recommendations for various parties in the investment management sector - including the Government, UK authorities, the FCA and investment firms. Helpfully, the recommendations are given a recommended timescale which helps those concerned direct their time effectively. The recommendations are as follows: 

• Skill and talent: The Group recommends that the UK Government promotes the growth of relevant subjects including computer science, data science and software engineering at higher education institutions. It also mentions that more could be done to build symbiotic relationships between the industry and post-16 education institutions. 
• Regulation: The Group emphasises the importance of clear and consistent regulation in this area, which would allow developers and users of AI "to plan and invest with confidence". The Report states that the Group is supportive of the current direction of travel in relation to AI regulation, estimating a timescale for implementation of 2-3 years. 
• Malicious actors: Turning to the threat of potential misuse of AI technology, the Report reiterates the importance of mitigating action by both domestic and international authorities. Aimed at both public authorities and private industry bodies, the recommendation extends to joint action from both sectors to counter fraud, cybercrime and misinformation.
• New systemic risks: Addressing the FCA and Bank of England, the Report encourages innovation alongside managing the changing systemic risks in the financial sector. The Report also cites the incoming critical third parties regime as a positive development to empower regulators to address potential systemic risks.
• AI risks and governance: The importance of industry collaboration is highlighted, and the Group stresses the importance of such collaboration to identify best practices in AI risk management, governance and ethics. The Report also states that the IA will aim to produce more detailed industry guidance on AI risk and governance.
• Legal uncertainties: The Group accepts that legal uncertainties are unavoidable, but again the Report refers to industry collaboration to bring confidence and market reassurance in this area.
• UK FinTech ecosystem: Directed at the IA, the Report discusses building stronger connections between the investment management industry and fintechs, both domestically and internationally. 

Factors affecting AI in the investment management sector

The Group helpfully sets out factors which may enable these recommendations to be followed, as well as those that may create barriers. These include: 

• Internal factors causing implementation challenges: internal cultural resistance, measuring value, effective management of AI risks, technical limitations, and cost. 
• External barriers: public mistrust, shortages of talent, legal uncertainties and sustainability concerns. 
• External enabling factors: the presence of mature risk management and governance arrangements, and the vibrant UK fintech ecosystem. 

What now?

The Report concludes that if these recommendations are followed, the industry could progress towards a significant transformation. However, this journey should be undertaken safely and responsibly, creating a boost for the UK economy and industry. 

Written by Madeleine Chambers, trainee solicitor

“I am thrilled to welcome today’s report from the Technology Working Group. It provides UK asset managers with a blueprint for harnessing the power of AI and capturing the enormous opportunities it creates” Tulip Siddiq MP

https://www.gov.uk/government/news/technology-working-group-publishes-report-on-artificial-intelligence