Managing Machines: the governance of artificial intelligence  Speech given by James Proudman, Executive Director of UK Deposit Takers Supervision  FCA Conference on Governance in Banking 4 June 2019  I am very grateful to Philip Sellar for preparing these remarks, and to Sadia Arif, Jamie Barber, Jas Ellis, Magnus Falk, Orlando Fernandez Ruiz, Anna Jernova, Carsten Jung, Tom Mutton, Lyndon Nelson, Jennifer Nemeth and Oliver Thew for very helpful advice and comments. 1  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  Introduction Consider the well-known story of one Big Tech company’s attempt to use artificial intelligence to improve the efficiency of its staff recruitment. The machine learning system reviewed job applicants’ CVs with the aim of automating the search for top talent. The company’s experimental hiring tool used artificial intelligence to give job candidates scores ranging from one to five stars. Within a year, the company realised its new system was not rating candidates for software developer jobs and other technical posts in a gender-neutral way. That is because the computer models were trained to vet applicants by observing patterns in CVs submitted to the company over a 10-year period. Most came from men, a reflection of male dominance across the technology industry. In effect, the company’s system taught itself that male candidates were preferable. It penalised CVs that included the word “women’s” as in “women’s chess club captain”. And it downgraded graduates of two all-women’s colleges.

The Islamic financial system also needs to include the capital market to provide an alternative source of financing, as well as to create broader and more diverse Islamic financial instruments for investors. The equity and bond markets will provide a more balanced allocation of financial and economic resources. This would result in a more efficient distribution of risks within the system, thus creating stability in the system. The equity and bond markets would also provide an avenue for raising long-term capital. With a wider spectrum of instruments in the market, fund managers would be able to manage their portfolios better and spread their risk according to their desired risk tolerance, thereby contributing toward greater stability. Complementing these financial markets is the development of non-bank Islamic financial institutions. Takaful, or Islamic insurance, provides the risk protection to its policyholders and serves as an important mobiliser of long-term funds. In addition, development financial institutions, savings institutions and housing credit institutions need to be developed to meet the diversified customer demands. These specialised institutions will meet the different requirements of the economy. IV. Malaysia’s experience in the development and management of the Islamic finance  The strategy adopted by Malaysia has been to develop a comprehensive Islamic financial system. Malaysia started with the establishment of one Islamic bank to spearhead the introduction of Islamic banking products and services, and at the same time, identified the relevant financial segments that were required to support the expansion of Islamic banking activities.