ASIC

• Delphia (USA) Inc and Global Predictions Inc, boasted about using AI for designing investment strategies, but the SEC found their claims to be unsubstantiated.
• As well as exaggerating or misrepresenting their AI capabilities, companies may inflate the abilities of AI algorithms or create the illusion AI plays a more significant role than it actually does.

What’s so good about AI?

• It can streamline processes, quickly break down and analyse complex data to speed up decision-making, and help organisations stay ahead in a rapidly evolving and competitive market.
• Promoting its use of AI helps portray a company as high-tech and cutting-edge, even if the reality doesn’t check out.
• It follows the same idea as greenwashing, where companies pretend to be eco-friendly to attract investors and consumers.

AI and the finance sector

AI washing flourishes in finance and investment because of the industry’s high-stakes, intense competition and the seductive appeal of technology-driven solutions. AI’s algorithms can analyse extensive datasets, enhance predictability and uncover hidden patterns in financial data. And AI’s real-time processing capabilities enable dynamic adaptation to market changes.

• The complexity of financial products provides room for firms to conceal the reality behind flashy AI claims.
• Such interest has led to venture capital firms allocating more capital to AI startups last year than they did previously.

A lack of regulation

• This lack of oversight erodes trust and credibility in the industry.
• The European Union AI Act is the first regulation in the world to govern the use, development, disclosure and oversight of AI.
• Holding companies accountable for accurate information about technology applications helps maintain the integrity of financial markets and ensures fairness for investors.

How to spot AI washing

• So, how can you, as an investor or consumer, avoid falling victim to AI washing?
• Verify registration status and credentials Before buying or investing in anything claiming AI capabilities, verify the investment company’s registration status and credentials by looking them up on the professional register.
• Be cautious with AI-focused investments Investing in AI-driven companies may seem promising, but be wary of companies that tout their “revolutionary” or “industry-leading” AI without providing specifics.
• This tactic is a common red flag for AI washing.
• Read more:
  Who will write the rules for AI?

Angel Zhong does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.