The trust economy is a dynamic entity, constantly reshaped by disruptors that alter the way we trust and interact with various facets of our lives.

Whether it’s steam trains revolutionizing transportation, Amazon transforming commerce, Google redefining information consumption, or Netflix changing the entertainment landscape, the trust economy thrives on the integration of new paradigms.

Even if we do understand the underlying technology (and many of us don’t), we must trust the designers and implementers to look after our wellbeing.

Today, the emergence of generative AI stands as one of the most significant disruptors in recent memory. Industries and verticals across the board are racing to incorporate this transformative technology into their operations, setting the stage for a profound shift in the trust economy.

While the proliferation of this tech is no doubt causing unease, it also presents an opportunity for Scotland to be a market leader: to implement it in a decidedly ‘human’ way, while paving the way for regulation.

In an interview with DIGIT, Callum Sinclair, Partner at Burness Paull, explores the readiness of society to trust AI and its implications for one of Scotland’s most treasured technological portmanteau’s: fintech.

The Trust Economy and AI’s ‘Regulatory Opportunity’

“Public trust in big tech is probably not where it should be, and there are good reasons for that,” posits Sinclair.

Some of the behaviours of some major tech businesses, for example regarding challenges related to privacy and fake news, have contributed to this erosion of trust.

Sinclair continues: “Everything has shifted towards emphasising user experience, which, in turn, has impacted trust: people can’t see what’s under the bonnet anymore.”

Sinclair highlights the growing dichotomy between the rapid pace of technological advancements and increased need for trust due to the opacity of such advancements and how they work, versus the dwindling public trust in tech giants due to problematic behaviours of some.

In an era dominated by complex technologies like AI, understanding the inner workings of these “black boxes” becomes paramount in the endeavour to rebuild and fortify public trust.

Initially, the UK signalled the intention to adopt, as Sinclair puts it, a “regulation-light, supposedly innovation-friendly” stance. However, as the extent of AI-related risks, such as bad actors and privacy concerns, came to the forefront, the question shifted from how to incorporate AI in a way which more directly tackles potential harms.

Sinclair remarks: “How can we help Scotland thrive in this transformative, AI-led environment, becoming market leaders in a trust economy characterised by ethical, trustworthy, and inclusive AI? The current regulatory silos are causing undue stress and complexity for compliance, risk, and legal teams.”

“You need effective regulatory frameworks and standards in place,” Callum notes.

He adds: “The first proper attempt to regulate it is the EU AI Act, which has a very strong focus on products rather than individual harms, but it’s certainly bold – in the same way that GDPR was.”

Beyond that, all we really have in terms of best practice frameworks are from the likes of the Centre for Data Ethics and Innovations and the OECD, but these are essentially voluntary codes and guidelines.

Comparing GDPR and AI with regards to regulation, Sinclair says, “If it’s coming (and it is), how do we really grasp the opportunities and manage the challenges? In the context of GDPR, it was all about privacy and security by design. In the context of AI, it should be about ethics by design, inclusivity by design, and trustworthiness by design.”

This acknowledgment highlights the intricacies and nuances involved in regulating AI, shedding light on the EU AI Act’s distinct approach, which emphasises products over potential harms.

It’s worth noting also that over 150 businesses executives, including from Meta and Renault, signed a letter warning that Europe could be left behind because of the draft EU AI bill (as it was).

Executives from Siemens in Germany and Airbus in France were also signatories of the letter which claimed Europe would jeopardise their competitiveness through the law’s regulations.

Talking about where we’re at with AI regulation, Sinclair says: “Generative AI technology is still in its infancy, and if we don’t regulate it effectively in time, we miss an opportunity. We’ve seen it happen in the past with things like social media, where there’s been a pervasive sense of regulatory reactivity as opposed to proactivity, and poor behaviours have pervaded before regulators can prevent them.

“With AI, we’ll never get the same opportunity again to regulate it in its nascent stage and put in place the right frameworks and regulation at that stage. Right now, we’ve still got that opportunity, but we need to move quickly.”

Elon Musk and a number of high-profile big tech representatives famously signed an open letter calling for a six-month halt in generative AI development, calling for the pause to be ‘public and verifiable, and include all key actors. If such a pause cannot be enacted quickly, governments should step in and institute a moratorium.’

Is this a valid solution?

Weighing in, Sinclair says: “While there’s lots of question marks around this, the big one is can we actually slow the development AI and the answer is, of course, you can’t. But what you can do is slow and condition the access to these technologies by the wider public.”

Sinclair feels that humans and a degree of emotional intelligence must be at the heart of how we use AI.

Much has been written about the importance of “humans in the loop”.  Considering the questions, we need to ask ourselves, Sinclair says, “You know where humans are adding value, so are they doing something that requires emotional intelligence? Are they doing something that is an important check and balance on AI systems? Is AI augmenting the human role in processes rather than replacing?”

AI’s Potential Impact in Scottish Fintech

The implications of AI in financial services are both exciting and fraught with danger. While there’s clear benefits in areas like customer services, things like AI-assisted trading (which is already happening) pose decidedly greater risk to financial systems.

Sinclair expresses his concern, stating: “AI’s influence on financial services is a critical issue. New developments in algorithmic trading systems can create systemic risks, potentially leading to financial crises.” This candid assessment highlights the gravity of the changes underway in the financial sector.

Transformation journeys are central to many fintech’s; however, AI further muddies these waters. Navigating the buzzword-laden landscape of “digital transformation,” Callum offers a pragmatic perspective: “The phrase is ubiquitous, but we need to discern real opportunities amidst the hype.” This approach calls for a balanced evaluation of technological advancements versus opportunity and risk.

In a nod to Scotland’s burgeoning fintech ecosystem, Sinclair emphasises the role of AI in automating financial regulation, stating, “In Scotland’s thriving fintech scene, AI can play a significant role in automating a lot of that process under appropriate human supervision.

“As it stands, there’s a big regulatory burden even for small fintech businesses. It’s an extension of Regtech, really, being part of that toolbox.”

With that in mind, what does Sinclair think with regards to embedding this nascent technology into a fintech’s operations?

He says: “Whether you’re a small scaling fintech or one of the large financial services organisations, it needs to be on the table, at board level, and there needs to be a level of understanding of the opportunity and the risk.” Regardless of a business’s size, the conversation around technology and its implications must occupy a prominent place in boardroom discussions.

One undoubtedly promising area for the tech is improving customer service through generative AI, such as chatbots. As these systems evolve, they can provide more effective and engaging customer interactions.

Regarding chatbots, Sinclair says: “While chatbots may currently have limitations, they’re advancing rapidly and could soon pass the ‘Turing test’, making them indistinguishable from human interactions.”

Looking more broadly at financial services, Sinclair talks about the regulation-focus of the more traditional businesses, with these organisations boasting large compliance, risk and legal teams. How could AI disrupt this model?

“These businesses are set up, as regulation requires, for them to monitor systemic risk – individual points of failure and so on.”

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“What does AI do to that environment? Well, again, it needs to be a board-level issue for our businesses, large and small, whether you’re a small scaling fintech or a big bank.  There are huge opportunities.”

“AI’s influence on finance is profound, and understanding its potential and limitations is vital for the industry’s future.”

This statement encapsulates the essence of our conversation, emphasising the transformative power of AI and the critical need for ethical considerations, regulatory frameworks, and a discerning approach in navigating this unique space and time for technology.