Legal Responsibility in Investment Decisions Using Algorithms and AI

Makoto Chiba, Mikari Kashima and Kenta Sekiguchi
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Makoto Chiba: Bank of Japan
Mikari Kashima: Bank of Japan
Kenta Sekiguchi: Bank of Japan

No 19-E-1, Bank of Japan Research Laboratory Series from Bank of Japan

Abstract: This article provides an overview of the report released by a study group on legal issues regarding financial investments using algorithms/artificial intelligence (AI). The report focuses on legal issues regarding the automated or black-boxed financial investment decisions by using algorithms/AI. Specifically, the report discusses the points for consideration in applying laws regarding (1) regulations and civil liability issues surrounding business operators for investment management or investment advisory activities, and (2) regulations on market misconduct. The report shows that the application of some existing laws requires the presence of a certain mental state (such as purpose and intent), which is unlikely to be given in the case of investment decisions using algorithms/AI. To deal with this problem, the report considers the necessity of introducing new legislation.

Keywords: algorithm; artificial intelligence; AI; investment decision; duty to explain; duty of due care of a prudent manager; market manipulation; insider trading (search for similar items in EconPapers)
JEL-codes: K22 (search for similar items in EconPapers)
Date: 2019-04-26
New Economics Papers: this item is included in nep-big, nep-cmp and nep-law
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