Ethics In Financial Services Insights
Insights and Highlights: AI Ethics in Financial Services Summit
Held as an immersive and educational meeting of financial experts spanning diverse corporate roles, the panel-led discussions explored the pivotal concept of trust in AI within the financial services industry. Key discussions encompassed:
- The ethical risks of AI in finance: From fairness concerns to biased algorithms, including potential pitfalls and how to mitigate them.
- Restoring trust through responsible AI: Best practices for developing, deploying, and governing AI ethically and transparently.
- The future of AI in insurance underwriting: Insights into the latest regulatory updates and ethical considerations in this critical area.
During our productive roundtable discussion, issues regarding transparency, mitigating bias, and the necessity for standardized practices were highlighted. The dialogue underscored the significance of employing data ethically to cultivate consumer trust. There was consensus on the importance of collaborative efforts to develop trustworthy AI solutions that ensure fair and responsible practices within the insurance industry in particular.
Panel topics included:
- AI Regulation Update
- Jillian Froment, Executive Vice President and General Counsel, American Council of Life Insurers (ACLI)
- Kaitlin Asrow, Executive Deputy Superintendent, Research and Innovation Division, New York Department of Financial Services
- Stephanie Schmelz, Deputy Director, Federal Insurance Office U.S. Department of Treasury
- Self-Regulatory Approaches to AI Governance
- Moderator: Sophia Duffy, JD, CPA, AEP®, Associate Professor of Business Planning, The American College of Financial Services
- Anthony Habayeb, Co-founder & CEO, Monitaur
- Reva Schwartz, Research Scientist, National Institute of Standards and Technology
- Fireside Chat
- Arezu Moghadam, Ph.D., Managing Director and Global Head of Data Science, J.P. Morgan Asset Management
- Marty Edelman, Senior of Counsel, Paul Hastings
- Unpacking “Fairness” in Insurance
- Moderator: Azish Filabi, JD, MA, Associate Professor of Business Ethics, Executive Director, The American College Cary M. Maguire Center for Ethics in Financial Services
- Lisa A. Schilling, FSA, EA, FCA, MAAA Director of Practice Research, Society of Actuaries Research Institute
- Peggy Tsai, Chief Data Officer, BigID
- Case Study - AI Governance in Life Insurance
- Azish Filabi, JD, MA, Associate Professor of Business Ethics, Executive Director, The American College Cary M. Maguire Center for Ethics in Financial Services
- Sophia Duffy, JD, CPA, AEP®, Associate Professor of Business Planning, The American College of Financial Services
The summit provided valuable insights into the evolving landscape of AI regulation and ethics, emphasizing the importance of collaboration, transparency, and responsible AI practices.
Stay tuned for forthcoming insights highlighting specific discussion topics from our esteemed panelists, including regulators, researchers, and industry leaders.
To learn more about AI in financial services, you can explore further with research from the Center for Ethics in Financial Services.
Ethics In Financial Services Insights
Five Key Questions for Ensuring Responsible AI in Financial Services
Azish Filabi, JD, MA, Executive Director of the American College Cary M. Maguire Center for Ethics in Financial Services, and Neeraja Rasmussen, Founder and CEO of Spyglaz and an advisory council member of the American College Center for Women in Financial Services, explore the vital link between responsible AI and financial progress in a recent article published by Financial Advisor Magazine. They shed light on key principles and inquiries guiding this transformative journey and uncover essential aspects to navigating this dynamic landscape, shaping the trajectory of responsible AI, and determining its impact on the financial industry.
As the financial services landscape undergoes a profound shift due to the integration of AI, cultivating responsible and trustworthy AI systems has become paramount. Filabi and Rasmussen delve into the intersection of AI and financial services, emphasizing the imperatives of unbiased, fair, and dependable AI within the context of high-stakes decision-making in the financial industry. Unveiling five pivotal questions, this article serves as a strategic guide for financial leaders. The encompassing crucial features of trustworthy AI addressed within range from the establishment of rigorous data and algorithm audit procedures to the integration of responsible AI principles throughout the technology development process.
Critical questioning is also a strategic necessity for industry leaders navigating the complex landscape of AI adoption. This dialogue ensures a commitment to developing AI technologies aligned with the highest standards of ethical responsibility and integrity. The National Institute for Standards and Technology (NIST)’s efforts to standardize trustworthy AI terminology and the inclusion of trustworthy AI principles in the DARPA AI Forward initiative further exemplify the comprehensive approach to addressing the complexities of this transformative field. As financial institutions grapple with the challenges of AI integration, these insightful questions are invaluable guidelines for discussions with both internal teams and AI vendors.
To explore these insights and other strategic guidance on fostering responsible AI, read the article published by Financial Advisor Magazine.
To learn more about artificial intelligence in financial services, you can explore further research findings from the Center for Ethics in Financial Services.
Ethics In Financial Services Insights
AI Ethics in Financial Services Summit to Examine Challenges of Artificial Intelligence
On April 2, the American College Cary M. Maguire Center for Ethics in Financial Services will host an AI Ethics in Financial Services Summit in New York City examining governance and ethics challenges of AI use in financial services.
Crafted as an immersive and educational meeting of financial experts spanning diverse corporate roles, the event aims to assist leaders frame governance and ethics considerations relating to the use of AI. The discussions will center around crucial aspects, some of which include:
- The ethical risks of AI in finance: From fairness concerns to biased algorithms, we'll explore the potential pitfalls and how to mitigate them.
- Restoring trust through responsible AI: Learn best practices for developing, deploying, and governing AI ethically and transparently.
- The future of AI in insurance underwriting: Gain insights into the latest regulatory updates and ethical considerations in this critical area.
As the financial services industry grapples with the ever-expanding role of AI, this summit stands as a beacon for forward-thinking professionals. It provides a unique opportunity to engage with industry leaders, share insights, and collectively shape the narrative around responsible AI integration.
Amidst the complex challenges faced by global leaders, the recent World Economic Forum annual meeting in Davos assumed a pivotal role in addressing the pressing need for rebuilding trust between business and society. As governments navigate increased societal division and armed conflicts worldwide, CEOs expressed mixed sentiments regarding how to best navigate instability and the escalating influence of AI. This highlights the critical importance of acknowledging and navigating the intricate landscape of AI while concurrently working towards restoring trust in the global community.
This summit will showcase eminent speakers encompassing regulators, researchers, and industry leaders. Notable among them is Kathleen A. Birrane, currently serving as the Insurance Commissioner at the Maryland Insurance Administration. Additionally, Jillian Froment will be sharing her expertise in her role as the Executive Vice President and General Counsel at the American Council of Life Insurers (ACLI), while Arezu Moghadam will contribute valuable insights as the Managing Director and Global Head of Data Science at J.P. Morgan Asset Management. Furthermore, Reva Schwartz will bring valuable perspectives to the discussion as a Research Scientist at the National Institute of Standards and Technology.
Explore our AI Ethics Summit details and additional speakers. If you are interested in attending and would like an invite, email us at ethics@theamericancollege.edu.
To learn more about artificial intelligence in financial services, you can explore further with research findings from the Center for Ethics in Financial Services.
Ethics In Financial Services Insights
Executive Education from the Leaders in Applied Ethics
Recognizing this gap, The American College of Financial Services developed the Trust & Leadership Certificate Program, designed to equip home office leaders with the skills necessary to build and restore trust with their field force, home office colleagues, and ultimately consumers.
The program is a cohort-based model meant for 10 to 30 select leaders at a single firm working at their corporate or home office. It’s the only executive education program to address the implications of trust between home office leaders and their field force, their colleagues, and their clients.
Participants meet for 10 hours of learning either in-person, fully remote, or hybrid, with approximately five hours of pre-reading and prep time. In-person sessions can be conducted on company grounds or as part of an existing engagement opportunity (e.g., a company retreat). Summarizing their experience in the program, one leader remarked, “Understanding the different trust challenges that the groups presented will enable me to use the information when coaching my team and working with peers.“
The centerpiece of the program is a capstone project. Participants work with their peers to workshop a real-world trust and leadership challenge for review. In a final group presentation, participants offer an analysis of the challenge and a plan to address it. In doing so, the capstone enables participants to apply the insights and tools learned in the program and positions them to lead on trust within their companies.
Enrollment is limited, so don't wait!
Ethics In Financial Services Insights
Factors Influencing Trust Formation in Financial Services
In business, trust is critical. In financial services, it’s even more so because of the fiduciary nature of many relationships in the industry. In their presentation, Drs. Pattit and Pattit explored the factors that contribute to the formation of trust for seven types of financial services providers.
Their analysis relied on 1,697 consumer responses to a self-administered online questionnaire. The questionnaire permitted assessment of trust levels held by: (1) consumers who had a relationship with a financial institution; and (2) consumers with no relationship, but familiarity with a particular type of service. The results show that there is a marked difference in the level of trust between the two groups for all seven types of financial services.
Investigating this “gap” further showed that the factors contributing to the formation of trust differed between the two groups. These findings offer three practical implications for financial services companies. First, companies need to demonstrate consistent values in all channels, including operations. Second, companies can be intentional about creating “experience points” for building trust. Third, companies need to recognize that bad experiences negatively affect trust and spill over into other areas.
Further insight on these recommendations for practice and the analysis behind them were presented in a poster at the 7th Annual Academic Research Colloquium of the CFP Board Center for Financial Planning on December 7, 2023, in Arlington, Virginia.
A related research brief, Pathways to Trust in Financial Services: A Closer Look, is available for download from the Center for Ethics’ website. The data explored here is applied further in the Center’s Trust & Leadership Certificate Program.
Ethics In Financial Services News
AI in Financial Services Presents Opportunities, Challenges
Ethics In Financial Services Insights
Understanding Differentiating Reasons for Trust is Key to Winning Consumers
Humans hold complicated beliefs and emotions. This is evident in consumer trust in financial services. Our inaugural Trust in Financial Services Study brought to bear contradictory dynamics of trust in the financial industry. For instance, consumers may appreciate financial companies’ alignment with their belief in environmentalism, yet express skepticism when it comes to trusting financial companies to not pilfer their money.
Domarina Oshana, PhD, Director of Research and Operations of the American College Cary M. Maguire Center for Ethics in Financial Services shares additional insights in this article in American Banker on the dualities of trust and actions financial companies can take to increase trustworthiness with communities of color.
To win consumer trust, it’s important for financial companies to understand consumers’ different reasons for high or low trust, which vary depending on their community. Such insights can help close gaps in trust and build financial companies’ trustworthiness.
Ethics In Financial Services Insights
Impact of Artificial Intelligence (AI) in Financial Advisory Industry
Participants in the program gained practical guidance on how AI can be used to improve client services, how predictive analytic technology can advance client interactions with advisors, and the U.S. Securities and Exchange Commission (SEC)’s proposed rule on predictive data analytics.
Our panelists explored the transformative impact of artificial intelligence (AI) on the financial advisory industry. In an era marked by technological advancement, financial advisors are presented with both unprecedented opportunities and notable challenges. Financial technology is increasingly being used to help mediate the advisory relationship, providing seamless ways to match with financial advisors, communicate more effectively, and increase client engagement opportunities.
As AI tools have become increasingly available, integrating these techniques into advisory relationships has been on the rise within broker-dealers and registered investment advisors. The SEC proposed a new rule in August 2023 that highlights where regulators see an increased risk of conflicts of interest that may not be in the best interest of clients. The proposed rule outlines the SEC’s potential approach to addressing these risks when predictive data analytics are used in client interactions (for proposed rule, click here).
The panelists also explored the following topics:
- Use cases for how AI can enable advisors to make informed decisions and provide timely advice and services to clients.
- How predictive analytic technology and AI-enabled services can provide tools to clients to self-manage their own financial decisions and strategies.
- Governance practices that companies can consider to manage potential negative impact to clients.
- The SEC’s proposed rule on predictive data analytics and the regulatory perspective on the risks created by these technologies.
- The potential implications of AI on advisor/client interactions, and the industry.
Ethics In Financial Services News
IRS Crackdown On Wealthy Focusing On Crypto, International Holdings
Ethics In Financial Services Insights
The Fork in the Road for Social Enterprises
Published: Brown, J. A., Forster, W. R., & Wicks, A. C. The Fork in the Road for Social Enterprises: Leveraging Moral Imagination for Long-Term Stakeholder Support. Entrepreneurship Theory and Practice, DOI 10422587211041485 (in 2021); in print ET&P, 2023, 47(1), 91-112 (2023).
This manuscript was accepted for a special issue on stakeholder theory and entrepreneurship. It went online September 20, 2021, and in print in 2022/23. Entrepreneurship Theory and Practice (ET&P) is considered a top, AJG-4 rated journal,1 applied to journals that “publish the most original and best-executed research.”2 It has a five-year impact factor of 14.105. The paper has been downloaded over 1000 times as of May 2023. I am lead and corresponding author on the article. In 2022, it won the Best Published Paper Award at the annual International Association of Business & Society (IABS) conference—an international conference and institution dedicated to research and teaching about the relationships between business, government and society.
This article was motivated by reading about the popular philanthropic shoe company, the TOMS company. Founder Blake Mycoskie introduced a “one-for-one” business model, where he promised that for every purchase of shoes, the company would give away a pair of shoes to some needy child or person. The initial response from customers was highly supportive, but less than five years from its formation, the company found itself subject to a firestorm of critique from disillusioned observers who accused the company of being more focused on getting consumer dollars than making a tangible impact through their social mission. The cause of the criticism was associated mainly with TOMS’s failure to create opportunities for needy communities to better themselves. TOMS was accused of making people in developing countries dependent on the goodwill of others, in addition to preventing local markets from thriving.
Hence, my co-authors and I decided to unpack the issues that left TOMS (at least temporarily) on the bad side of its stakeholders. We were left wondering, what are the key factors for social enterprises (SEs) like TOMS that enable a company to sustain the support of their stakeholders beyond their nascent stage? Put another way, how can SEs capture positive social judgments and avoid a loss of moral legitimacy and stakeholder support, as happened in the TOMS case? And finally, what aspects of stakeholder theory are most relevant to social entrepreneurs in their quest to create and sustain long-term value creation?
To answer these questions, we develop a conceptual process model and testable propositions that have both theoretical and practical significance. The model shows that after SEs secure the support of primary stakeholders like financiers, suppliers and customers, they then face a “fork in the road” where they are assessed for social impact. If they continue their focus on primary stakeholders to the exclusion of secondary stakeholders like communities, they risk losing the moral legitimacy of both their primary and secondary stakeholders, which will ultimately cause their failure (i.e. they end up on the “low road”). However, our model shows how social entrepreneurs and their enterprises can leverage their moral imagination---the ability to understand the activities of business from a number of perspectives---to affect the ways their stakeholders envision their legitimacy (i.e. they end up on the “high road”). They can do this: 1) in broadening stakeholder awareness and engagement, 2) in empathizing with secondary stakeholders, and 3) in establishing microsocial norms. Thankfully, TOMS became aware of broader stakeholder concerns and chose to engage with both primary and secondary stakeholders, using moral imagination to regroup and take ‘the high road’. In sum, our manuscript provides a nuanced stakeholder lens that identifies factors critical to the longevity of SE businesses.
I use the TOMs case study and my developed process model in my current graduate classes, in executive education and in my pro bono ethics/stakeholder training for compliance professionals. There is a message for social entrepreneurs in the need to pay attention to secondary stakeholders, and I find that it is received well by leaders across all stages of entrepreneurship.
In sum, this article has been recognized by a highly regarded journal and is beginning to contribute to the advancement and refinement of stakeholder theory and social entrepreneurship.