Views on improving the integrity of global capital markets
01 February 2019

Share Feedback on Ethical Considerations in the Use of Artificial Intelligence

Technological innovations continue to represent drivers of change for the investment management industry. From spreadsheets to algorithmic models, the industry utilized computing power to enhance the research and analysis vital to making informed investment decisions. Today, artificial intelligence (AI) is leading the next round of change. And change of any nature provides an opportunity to review the norms of accepted conduct.

CFA Institute and its members regard the CFA Institute Code of Ethics and Standards of Professional Conduct (Code and Standards) as the benchmark for accepted ethical conduct in the investment management industry. The acceptance of AI as a tool for the industry provides an opportunity to review the norms of the Code and Standards given the technological changes.

To this end, the Standards of Practice Council (SPC), the volunteer committee tasked with maintaining the Code and Standards, recently published a consultation paper on the use of AI in the investment management industry. The paper first provides background on AI and its potential impact within the industry. Next, the paper discusses ideas for modifying risk management practices within firms implementing AI techniques. It then closes with specific questions seeking feedback on the application of the Code and Standards.

The Code and Standards consultation questions are grouped into three topical areas: Integrity, Engagement, and Accountability. Each area is arranged to seek input on elements of three different Standards.

Integrity addresses the application of the current Standards regarding market manipulation, material nonpublic information, and confidentiality. These Standards require individuals to act in a manner that protects the integrity of the broader capital market. By incorporating AI tools, individuals will potentially be less involved in the investment decision-making processes used to serve clients.

Engagement addresses the application of the current Standards regarding communications with clients, suitability, and diligence and reasonable basis. These Standards provide investors with reassurance that CFA Institute members are being thoughtful in managing their investments. As the investment manager becomes less involved in the decision-making process, client assurances will still need to be maintained.

Accountability addresses the application of the current Standards regarding misrepresentation, record retention, and responsibilities of supervisors. Clients will look to the firm to ensure that managers can address questions about the successful, as well as unsuccessful, decisions made using AI.

Through this paper, the SPC is seeking to provide a platform for discussing the benefits and concerns about the growing incorporation of AI in the investment management industry. We look forward to receiving your thoughts and feedback to the questions proposed, especially those questions related to specific elements of the Code and Standards. The insights of those applying or considering AI practices, as well as those who have elected to pass on incorporating AI, will be useful as we strive to maintain the CFA Institute Code and Standards as the model of proper conduct for the investment management professional.

To respond to this consultation, email your responses to [email protected] or enter your responses in this online form. The consultation is open until 29 March 2019.

About the Author(s)
Glenn Doggett, CFA

Glenn Doggett, CFA, was a director of professional standards for CFA Institute. His responsibilities included providing member guidance in applying the ethics and standards of practice policies, supporting related educational and public awareness activities, and working with the Standards of Practice Council of CFA Institute on its initiatives. He was a co-host of the free, live, interactive webinars used by CFA Institute to promote ethical decision making and global best practices. Previously, Mr. Doggett, as a member of the CFA Institute Financial Reporting Policy Group, represented membership interests regarding reporting and disclosures initiatives, including XBRL. Prior to joining CFA Institute, he worked in the financial information sector with SNL Financial, where he focused on the real estate and energy industries, directing the development and maintenance of a financial data storage system. Mr. Doggett holds a BA in economics from the University of Virginia. He was awarded the CFA charter in 2006 and is a member of CFA Society Virginia.

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