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Investment Association Alerts Investors Of AI Trading Risks

The UK’s Investment Association (IA) has issued a warning to investors about the potential risks posed by the use of artificial intelligence (AI) and trading bots in making investment decisions. The alert came in the wake of a recent US survey that showed a staggering one in three investors would happily entrust their investment decisions to a trading bot.

Highlighting the seriousness of the matter, John Allan, Head of Innovation and Operations at the IA, warned investors to exercise caution when adopting AI for their financial planning. He explained: “Investment is something that’s very serious, it affects people and their long-term life objectives. So being swayed by the latest craze might not be sensible. I think at the very least, we need to wait until AI has proved itself over the very long term, before we can judge its effectiveness.”

Allan emphasised the importance of human oversight in the industry, stating: “And in the meantime, there will be a significant role for human investment professionals still to play.”

AI isn’t just prone to financial errors; it carries considerable cybersecurity risks too. Prof Sandra Wachter, Senior Research Fellow in AI at Oxford University, identified that AI systems can be compromised, leading to “hallucinations”, where the AI produces inaccurate or false information. Additionally, these AI systems may be vulnerable to “model inversion attacks”, where hackers aim to extract underlying coding and data.

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Corroborating this, Security Expert and CTO of RiverSafe, Oseloka Obiora, noted: “The risks of engaging AI-enabled trading bots to make investment decisions aren’t just financial, they could also include major security ramifications if the technology is compromised.”

Obiora advised investors to diversify their decision-making resources rather than relying solely on AI: “It’s important that sound financial decisions are taken by consulting several sources, not just relying on the latest algorithm.”

Derek Mackenzie, CEO of Investigo, part of The IN Group, argued that while AI continues to transform the financial services industry, there is a scarcity of highly skilled AI specialists to maintain these systems. He warned, “Without a team of highly skilled AI specialists in place, many organisations will find themselves facing serious challenges when things go wrong, or upgrades are needed to ensure AI algorithms are operating correctly.”

Conversely, Khalid Talukder, Co-founder of DKK Partners, encouraged a balanced view of AI in investment: “Investors can and should use bots to source advice but relying 100% on an algorithm without any additional research could lead to disastrous consequences.” He suggested the blending of AI with traditional investing tools for a more comprehensive approach.

Source: securitybrief

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