Guarding Against Risks in AI­Based Investment

Recently, stricter regulation over artifi cial intelligence (AI)-based investment con- sultancy has attracted public attention. The supervising authority banned a number of local fi nancial asset exchanges operating under the pretext of AI-based investment consultancy; some so-called intelligent wealth management platforms lacking qualifi cation as public funds were ordered to stop business; and some peer-to-peer (P2P) lending platforms using so-called intelligent wealth management to woo investors were outlawed. Incomplete fi gures show that tens of so-called AI-based wealth management platforms and intelligent investment con- sultancy platforms have been banned since July, when the supervising authority issued a ban on related illegal investment activities by online platforms and exchanges.

In China, there are currently no uniform standards and supervision rules on AI-based investment, except that the license for se- curities investment consultancy covers the business of intelligent wealth management. There are mainly three types of intel- ligent investment platforms First, wealth management mobile applications or soft- ware developed by traditional financial institutions with their existing fi nancial busi- ness licenses, which are essentially securities investment consultancy services; second, intelligent fund investment portfolio services provided by third-party Internet platforms licensed for investment funds, trusts and insurance, which are essentially sales chan- nels for financial products; third, so-called financial technology (Fintech)-based wealth management, robot investment and big- data wealth management services provided by P2P lending companies, local financial asset exchanges and so-called Fintech fi rms without corresponding licenses to offer such services.

AI technologies, with deep-learning capa- bilities, can make up for human weaknesses and improve investment effi ciency, but there are huge risks behind “robot wealth manage- ment,” or the AI-based investment business. On the one hand, it is not yet clearly defi ned whether robot wealth management belongs to the business of asset manage- ment, financial consultancy or investment consultancy. This thus gives an opportunity to those who aim to collect funds illegally un- der the pretext of AI-based investment. For instance, some so-called intelligent wealth management platforms try to attract funds by lying about investment returns and exag- gerating the strength of AI technologies, but actually they are engaging in Ponzi schemes and other fraud activities; and some plat- forms misappropriate investors’ funds, which may cause liquidity crises.

On the other hand, even in licensed institutions, AI-based investment activities may also lead to many problems Is robot investment compliant with regulations How will investment returns be divided Who will bear the losses Who are the actual control- lers of investment accounts in mobile phone applications How to deal with the legal risks of “persons acting in concert” in the stock market when investors hire the same excel- lent robot to invest in the market And how to deal with the ethical risks once invest- ment robots damage the interests of others in order to maximize investment returns

These problems involve not only legal and ethical risks, but also the stability and sound development of the fi nancial system. For instance, since AI-based investment is closely connected with Internet compa- nies, it involves much more investors than traditional investment methods. The risks will therefore be much more widely spread via the Internet, and more likely to cause systemic financial risks. Moreover, AI-based investment itself is vulnerable to risks such as attacks from hackers, Internet break- down, algorithm defects, technology risks, unauthorized operations and the leakage of personal information.

The National Financial Work Conference, which convened in Beijing on July 14-15, vowed to resolutely punish behaviors se- verely disturbing the fi nancial market order, strictly regulate transaction behaviors in the financial markets, enhance supervision of Internet-based finance and strengthen the responsibility of financial institutions in preventing risks.

This requires related government departments and institutions to actively prevent potential fi nancial risks arising from AI-based investment, discover and dispose of those risks as early as possible and guide such in- vestment to better serve the real economy and investors.