Philippine capital markets are not yet ready to adopt artificial intelligence (AI) for trading, advisory services, or market prediction, as the country's investor base remains hesitant toward new technologies, according to the Bangko Sentral ng Pilipinas (BSP), the central bank.

“Customers are resistant to the use [of AI in capital markets]. They're hesitant, I think. They're hesitant to use it because it's not familiar. At the end of the day, it goes back to what's appropriate in the market. What are our products? How are we going to take it? So, it goes back to that because it should fit the client and the market,” Mark Anthony B. Perez, technical advisor/director at the BSP Technology & Digital Innovation Office's Artificial Intelligence and Data Analytics Hub, told reporters on the sidelines of an event on Friday last week.

Mr. Perez said the Philippines is not an outlier, as the use of AI in capital markets remains “not that extensive” even worldwide, with adoption largely dependent on the maturity of each market.

Citing the earlier wave of roboadvisors — automated services that use algorithms to deliver investment advice with limited human involvement — Mr. Perez suggested that timing and user comfort matter as much as the technology itself.

“Roboadvisors became popular four or five years ago, but it didn't fly. And I think it's because maybe the technology was too early, or maybe people are not comfortable with it. So, maybe, I think it's also the ability of people to adapt to this… People need to be ready to adapt to a new technology, and maybe it's too soon,” he said.

Compared with retail use cases, applying AI in capital markets could prove more complicated, Mr. Perez said. The distinction comes down to delegation: market-facing tools such as algorithmic trading ask users to hand trading decisions and order execution over to models rather than make those calls themselves.

“I think, for one, AI in capital markets is a completely different ballgame as AI for retail, for example. What we're talking about is market movements. I don't know how comfortable people are to actually leave it to an algorithm or a model to do that. These ideas of algorithmic trading and all that, we are not ready for something like that at the moment.”

Meanwhile, reliance on AI systems built by foreign entities also presents various risks to organizations, he said.

“I was talking about AI asymmetry, … where you have the well-developed countries that have the concentrations of the AI, and the rest of the world is basically using their models and their systems,” Mr. Perez said. “So, this is why in many countries, they are starting to talk about AI sovereignty. And for you to be able to build that, you need several things. You need skills, you need infrastructure, you need capabilities.”

“Third-party risk is a problem worldwide because you can just count on your fingers the ones that are actually providing the top AI tools… In the past, there was an opportunity for technology to flow and move. But now, with cloud and all that, they don't need to move. There's platform as a service. There's software as a service. There's infrastructure as a service. So, while we might learn skills, it doesn't necessarily mean we'll be able to build our own, which is why when you talk about AI asymmetry, you have to talk about AI sovereignty as well.”

Reducing dependence on AI systems developed by third parties would allow for better cost control, better regulation, and better datasets and behavioral patterns, Mr. Perez added.

Entities deploying AI will also need to consider the technology's impact on their environmental, social, and governance standards, he said — a consideration that extends to the computing power and energy consumption AI systems can require.

For now, the markers to watch are the ones Mr. Perez himself identified: whether local skills, infrastructure, and capabilities develop, and whether customer comfort with unfamiliar financial technology shifts — the maturity factors he said will shape how broadly AI eventually spreads through capital markets.

This story was originally reported by Aaron Michael C. Sy for BusinessWorld: Philippines not ready for AI use in capital markets