On 30 May, UK Finance released a co-authored report on building Sustainable Financial Services in the Digital Age, which explored the role of artificial intelligence (AI) in disruption.

AI is an umbrella term that describes a range of technologies and capabilities. The most common application of AI thus far is ?machine learning?. Many people will be familiar with this as the technology that enables recommendations on video and music streaming websites. The system ?learns? from numerous previous interactions, and identifies patterns in the context of pre-set rules.

There is considerable hype about the potential of AI, particularly in how it can disrupt sectors across the economy. It is difficult to know all the uses that might emerge, but tools that can intelligently use data to help make decisions, streamline business processes, or provide a more personalised customer experience will become more common.

The report goes into detail on a number of areas where AI will disrupt the banking sector, and how finance organisations can look to embrace it. For example, the report notes how AI can help firms model risk within their business, moving the business management lens from historic to forward-looking. Other examples could be in improving the effectiveness of ?Know your customer? (KYC) processes, regulatory reporting, money laundering and fraud detection, customer service, complaints handling and cyber resilience.

AI and better data management could help customers receive more personalised services, and manage their finances across a range of institutions and organisations. Customer relationships can become more personalised, frictionless and forward-looking. Chatbots, or ?virtual assistants?, are already helping customers transact and solve problems.

As with any new technology it is important to take a measured approach, and understand how it works, its current applications and limitations, as well as its possible future applications and limitations. It is about choosing the right technology for the right purpose. Financial institutions and regulators will want a clear way to understand what tools are doing, see that data is being used legally and ethically, and have appropriate risk management in place to protect customers. This will require investment and training in skills for their staff.

The report highlighted three emerging risks with AI that customers, regulators and institutions will want to consider:

• AI and machine learning solutions create the risk of ?black boxes? in decision-making.
• Using AI and machine learning applications may increase reliance on a limited pool of suppliers, as AI solutions are offered by a few large technology firms.
• Applications of AI and machine learning could result in new and unexpected forms of interconnectedness between financial markets and institutions, and draw connections in information about individuals, the ethics and transparency of which must be thought through.

It is through all stakeholders - organisations, policymakers and regulators - working together, sharing data and intelligence and developing guidelines, that we can better deliver the benefits of digital transformation in a sustainable manner, while avoiding the potential pitfalls.