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Regulatory and Ethical Considerations of GenAI and Portfolio Construction

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12 August 2024
Ashley Longabaugh

When it comes to portfolio construction, the integration of AI technologies, including GenAI, introduces a host of ethical considerations and regulatory hurdles. One pressing question revolves around the transparency and "explainability" of AI systems employed in decision-making processes, particularly in meeting fiduciary obligations. While AI has the potential to analyze vast amounts of data, identify patterns, and make data-driven investment decisions, the need for human intervention by licensed advisors and/or traders remains paramount, and will remain as such for the foreseeable future.

Encouragingly, global AI regulation is evolving and showing alignment across key areas:

  • Accountability and Oversight
  • Transparency and Interpretability
  • Data Privacy
  • Bias and Fairness
  • Security

Additionally, ​regulatory bodies will continue to navigate the following topics:

  • Defining AI and its scope in a manner that ensures consistent governance
  • Understanding various industry applications and industry needs
  • Focus on areas where AI is most at risk, without dampening innovation

Celent's latest report, Harnessing the Power of GenAI: Accelerating Portfolio Construction | Celent explores the potential use of GenAI during the portfolio construction process, including the regulatory and ethical challenges of its application.