AI is increasingly being used in many areas, including financial planning and investing. As with any emerging technology it’s important to be aware of the benefits and potential risks of using AI tools.
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How is AI being used in investing and finance?
Artificial intelligence, known as AI, is increasingly being used by banks, investment companies and people. AI tools are being integrated into financial applications in Canada and around the world.
AI systems can perform complex tasks based on the data fed into it. Financial institutions can use AI to create reports and to identify and flag unusual transactions in bank accounts. AI tools have the potential to increase efficiency, improve customer service, and potentially improve access to information to support decision-making.
When you log into your online banking app on your smartphone, you might receive AI-generated notifications about trends in your spending habits. Many Canadians are adopting AI tools to create budgets or plan their saving strategies.
The OSC conducted a behavioural science experiment that revealed Canadians are equally open to investment suggestions from AI systems and human advisors. There was no discernible difference in experiment participants adherence to investment suggestions provided by a human or AI tool, indicating Canadian investors may be receptive to taking advice from an AI system.
What are some of the benefits of AI in finance?
The use of AI in the financial sector continues to evolve. There are many potential benefits for individual investors as well as advisors, including:
- Supporting decision-making –Financial service providers are using AI systems to support decision-making processes in applications and functions including robo-advising (online advisers) who may offer value to investors who cannot afford the cost of in-person advice.
- Access to investing tools – Increasingly user-friendly platforms mean that investing tools and education are right at your fingertips. Many banking and investing websites now offer chatbots to help users find the information they’re looking for more quickly. And AI systems embedded into online do-it-yourself trading platforms have made it easier for retail investors to try their hand at buying, selling, and trading securities.
- Improved decision-making for advisors and firms – AI tools can often manage high volumes of data and report on trends as well as potential predictions. These findings can be used by advisors to support financial decision-making AI is being used in the areas of algorithmic trading, investment research, and sentiment analysis to support financial decision-making. In addition, areas like portfolio diversification and risk management can benefit from AI’s ability to interpret large pools of data.
The OSC’s report, AI in capital markets, looked at AI current use cases, value drivers and challenges. The International Organization of Securities Commissions recently published a report that addresses the rise of AI use in capital markets and its impact on investors globally. And the OSC released staff research analyzing the frequency and sentiment of Canadian listed issuers’ references to AI in their financial disclosures over a 10-year period.
What are some of the potential risks of AI in finance?
As AI use increases, understanding its role in supporting retail investor decision-making is important. While AI presents a range of opportunities for investors, like with any tool, there are also risks AI can pose to investor outcomes. Some risks include:
- Bad actors using AI to commit fraud and scams – In the hands of fraudsters, the same tools that make it easy to access information and generate visual content can also make fraud and scams more convincing, and more difficult to detect and easier to unleash on an industrial scale. Scams can include:
- Voice and face cloning – Generative AI can quickly create authentic-looking content including text, images, video, and audio. AI scams imitate the voice or image of a person you know, or make it seem like a celebrity or politician is speaking to you directly.
- Impersonation of legitimate sites – Fake websites or mobile apps that look like legitimate bank, investment firm or AI platforms. Imposter AI platforms may attract interest on social media by promising automated trading or investment services powered by AI.
- Pump and dump schemes – Scammers will promote certain stocks or cryptocurrencies. They try to get attention by claiming their recommendations are based on AI algorithms. After artificially inflating the value of these assets, scammers will sell, the price will crash, leaving investors with losses.
- Unverified AI trading bots – Scammers will promote automated trading bots supposedly powered by advanced AI algorithms that can execute profitable trades. Investors may be intrigued by the promise of quick and substantial profits, thinking that AI can analyze market fundamentals better than humans. In reality, they may not be using AI at all.
- Bias & discrimination – AI models rely on the data that humans give. If the data fed to an AI tool is biased or discriminatory, the outputs will also be biased and discriminatory. Such biases may result in investment recommendations from an AI tool that a person is accessing directly that are not objective but are skewed in some manner. Remember to do further research before making an investment decision. Or, the data used to train AI and create algorithms may mirror social inequalities relating to gender, race, or socioeconomics. For example, women tend to be risk averse investors. An AI tool may suggest low risk investments to women. This could potentially mean women would miss out on higher risk investments that could have higher yield.
- Lack of transparency – AI systems can be very complex and involve machine-learning (how it works being a “black box”). These two factors can be at odds with the level of transparency you may want to see in the financial sector, particularly around decision-making, data privacy, and outcomes. For example, someone could ask AI to generate recommendations and advice on investment decisions by processing vast amounts of data, making predictions, and generating reports. However, it’s likely they won’t know what data is being used to generate the reports. As an investor, you might wonder exactly how the AI came to the recommendations it provided. As a result, this lack of transparency should lead you to research further before making a decision based on an AI-fuelled recommendation.
OSC research found AI-enhanced scams pose significantly more risk to investors compared to conventional scams. These scams are more pervasive, harder to detect, and potentially more damaging than conventional scams. It also identified ways to protect investors from AI-enabled fraud. The inoculation technique, which involved providing scam awareness information to investors just before they see an investment opportunity effectively reduced the participants’ susceptibility. This technique reduced investment in fraudulent opportunities by 10%.
What’s being done in Canada to mitigate risks from AI in the financial sector?
There are a growing number of uses for AI in finance with benefits and risks. The technology is rapidly evolving. Some people are calling for greater governance, policy, and regulation of AI in finance. The OSC is working with regulators nationally (Canadian Securities Administrators) and internationally (International Organization of Securities Commissions) to further a shared understanding of the issues, risks and challenges that emerging AI technologies used in financial products and services may pose to investor protection, market integrity and financial stability. In addition, the OSC and other regulators continue to explore current AI use cases, value drivers and challenges to understand the ways that AI is transforming capital markets and the transformative potential of AI, including how it can benefit the investor experience and investor protection.
In general, financial institutions are concentrating their AI development efforts and deployment on lower-risk areas to support internal operations and processes through task automation such as enhancing communications (chatbot functions) and improving anti-money laundering. They’re prioritizing a phased-approach to implementation, and treating higher-risk applications, like risk management with more caution and added human supervision.
There is an important distinction between using a tool or advice from a registered firm/advisor versus going straight to an AI tool that is not regulated. Registration helps protect you. Always check the registration of any person or business offering you investment advice.
On the radar, is how to mitigate the risk of fraud and scams. Data shows that Canadians tend to trust AI-generated financial recommendations, which further emphasizes the need for safeguards at the system and individual levels.
Securities regulations are technology neutral and firms’ obligations to clients remain. This includes firms making product recommendations to investors that are suitable and put the clients’ interests first.
While governments and organizations are advocating for greater governance for AI in the financial sector, there are currently no AI-specific laws in Canada. Canada created a new government position in the spring of 2025 naming a minister for AI and digital innovation.
As AI is an emerging technology, it’s a good idea to use caution when weighing AI-generated financial recommendations and be aware of the possibility of AI frauds and scams. Find out how to spot fake websites.
Summary
AI is an emerging technology that is rapidly being adopted in many sectors, including the financial sector. AI tools can:
- Make predictions and generate reports and recommendations based on the data it is fed.
- Be used for many things including budgeting or tracking savings.
- Come with risks. It’s a good idea to use caution when weighing AI-generated financial recommendations. With any investing decision, it’s important to understand what you’re putting your money into and the risks.
