Fintech executives are concerned about the rise of artificial intelligence (AI) increasing banks' reliance on the big US tech firms.
At the Money 20/20 gathering in Amsterdam last week, some executives suggested that the sector will increasingly have to turn to the likes of Google Cloud Platform, Amazon Web Services (AWS), and Microsoft Azure to develop and use AI technologies, reports Reuters.
AI is used by financial services for the likes of detecting fraud and money laundering, amongst other use cases. However, the feasibility of deploying the necessary compute power for banks is impractical, forcing them to turn to a select few cloud providers.
ING's chief analytics officer, Bahadir Yilmaz, said: "You will always need them because sometimes the machine power that is needed for these technologies is huge. It's also not really feasible for a bank to build this tech," adding that this dependency is "one of the biggest risks" and could see banks experiencing "vendor lock-in."
Joanne Hannaford, CIO of Deutsche Bank's corporate bank, added: "AI requires huge amounts of compute and really the only way that you're going to be able to access that compute sensibly is from Big Tech."
The hyperscalers including Microsoft, Google, and Amazon, are among the biggest buyers of GPUs, having all invested billions in AI in the last couple of years. In the US, they are currently being targeted by a Federal Trade Commission investigation into their investment in AI firms.
In terms of the bigger picture, if financial services companies and institutions rely on a small handful of cloud providers, an outage could potentially have widespread devastating financial impacts.
In December 2023 Reuters reported the Bank of England and Britain's Financial Conduct Authority proposed rules to regulate the reliance on "external technology companies" for critical operations to avoid the potential that a glitch at one cloud company could bring down services across many financial firms.
Currently, banks are required to notify regulators when they move data into the cloud. This reporting process could be significantly complicated as the use of cloud computing increases.
A May 2024 report by the European Central Bank exploring AI and the potential benefits and risks for financial stability noted: "If new AI tools are used widely in the financial system and AI suppliers are concentrated, operational risk (including cyber risk), market concentration and too-big-to-fail externalities may increase."
The report also found that AI can be susceptible to data quality issues, and may have biases or even hallucinations.
At the end of that month, the EU financial markets regulator, the European Securities and Markets Authority (ESMA), issued guidance to financial services businesses using AI.
Across the pond in the US, Acting Comptroller of the Currency Michael Hsu spoke at the Financial Stability Oversight Council's AI Conference on Thursday about the importance of shared responsibility between banks and big tech.
Hsu said: “From a financial stability perspective, AI holds promise and peril from its use as a tool and as a weapon. The controls and defenses needed to mitigate those risks vary depending on how AI is being used. At a high level, though, I believe having clear gates and a shared responsibility model for AI safety can help.”
Hsu argues that AI should follow in cloud computing's footsteps, where operations, maintenance, and security responsibilities are assigned to the customers and cloud service providers depending on the service selected.
“Specific vulnerabilities may arise from the complexity and opacity of AI models, inadequate risk management frameworks to account for AI risks, and interconnections that emerge as many market participants rely on the same data and models,” Treasury Secretary Janet Yellen added.
