On 16 October 2019, the Bank of England (BoE) and the FCA published a joint report on machine learning (ML) in UK financial services. The report was created following the responses received in a joint survey of 300 financial institutions.

The survey questioned firms on the nature of deployment of ML, the business areas where it is used and the maturity of applications. It also collected information on the technical characteristics of specific ML use cases. Those included considerations on testing and validation, safeguards, the types of data and methods used, benefits, risks, complexity and governance.

While the survey findings are not statistically representative of the entire UK financial system, the regulators note that they do provide interesting insights into the use of ML in UK financial services.

The key findings of the survey include:

  • ML is increasingly being used in UK financial services with two thirds of respondents already using ML in some form;
  • in many cases, ML development has passed the initial development phase and is entering more advanced stages of development. Deployment is most advanced in the banking and insurance sectors;
  • ML is now used across a range of business areas and is mostly commonly found in anti-money laundering and fraud detection as well as in customer-facing applications. Some firms use ML in areas such as credit risk management, trade pricing and execution, as well as general insurance pricing and underwriting;
  • regulation is not seen as a barrier but firms stress the need for additional guidance on how to interpret current regulation. The biggest reported constraints are internal to firms such as legacy IT systems and data limitations;
  • the most common safeguards are alert systems and so-called ‘human in-the-loop’ mechanisms;
  • ML does not necessarily create new risks, but firms think that it could amplify existing ones;
  • firms mostly design and develop ML applications in-house, however, they sometimes rely on third-party providers for the underlying platforms and infrastructure i.e. cloud computing; and
  • the majority of users apply their existing model risk management framework to ML applications.

In terms of next steps, the regulators state that the survey constitutes a first step towards better understanding the impact of ML on UK financial services and forms the basis for a conversation around how safe ML deployment can be supported in the future. In order to facilitate this dialogue, the BoE and the FCA have announced that they will establish a public-private working group on AI to further the discussion on ML innovation as well as explore some of the questions above and technical areas covered in the report. They will also consider repeating this survey in 2020.