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Robots Expose Firms to Compliance Risks

Pressure to cut costs by replacing humans with robots may end up hurting firms if they’re not careful, PwC says.

  • By Joe McGrath

Growing pressure for investment firms to cut costs by automating jobs may leave them open to expensive compliance problems.

That’s the warning that PwC and McKinsey delivered in two separate research notes last month on robotic process automation, or using robots to replace work done by humans. “Without proper governance, the benefits of digital labor can quickly vanish,” PwC said in its report entitled, “Who minds the robots?”

In a big shift in the last six months, firms are spending more on automation software as a cost-cutting measure reminiscent of their decision to move jobs to cheaper locations abroad, according to Kevin Kroen, partner and lead of PwC’s financial services digital labor practice. He sees workforces becoming smaller and more highly analytical as a result.

“Robots do break [and] there are going to be areas where judgments need to be made,” Kroen said in an interview. “You need to make sure you have the right people minding what is happening in the actual operational environment. It is a different skill set.”

McKinsey agreed in its report, saying firms should embed “critical business-analysis and digital skills” into their next-generation operating models.

Firms that have humans checking the work of the robots may become overwhelmed as automation soars, making it important for ‘control points’ to be established early, according to PwC, which says retrofitting may be expensive while executive credibility may be lost if dealt with too late.

Glitches in technology, such as high-speed automated trading, can be expensive to investors, too. For example, in the “flash crash” in May 2010, about $1 trillion vanished from the market in 15 minutes as securities prices plummeted, the consulting firm said.

Regulators, meanwhile, have expressed concerned about the automation trend. The U.K. Financial Conduct Authority warned in a Business Plan 2016/2017 report that “firms’ reliance on complex infrastructures increases potential for problems and outages of key systems.”

And while there’s increasing appetite to replace humans in some functions in financial services, many chief executive officers acknowledge the technology still needs work.

“Like other firms, we are looking at artificial intelligence and machine learning as the next step forward,” Alasdair Haynes, CEO of pan-European trading group Aquis Exchange, said in an interview. “But we are still a long way from replacing humans in the chain.”

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