Introduction

According to the Financial Stability Board, FinTech is defined as “technologically enabled financial innovation that could result in new business models, applications, processes, or products with an associated material effect on financial markets and institutions and on the provision of financial services.” Looking at the concept globally, we observe that FinTech is a combination of many disciplines related to software, internet applications, and data science that aim to improve and automate traditional processes in the financial sector.

Historically, the financial system has been the most severely regulated sector of the economy. A well-functioning financial system is necessary for economic expansion, and finance is highly profitable for governments. Meanwhile, it is simple for some banks to take advantage of their customers, and financial crises are enormously expensive. Not unexpectedly, the government closely monitors every area of the financial system, from micro rules safeguarding inexperienced bank customers with guidelines on letter sizes in documentation to macro rules requiring banks to act responsibly, thereby reducing systemic risk.

FinTech and Funding Opportunities

FinTech brings several opportunities (competitive prices, better user experience, wider inclusion), but also risks (credit risks, market risks, cyber risks), amplified by the interconnectedness of FinTech platforms, which generates contagion and systemic risks. It is evident that the issues to be investigated are many and in various directions.

In addition to FinTech, other new terms have entered our lives over recent years, such as BigTech, SupTech, RegTech, artificial intelligence (AI), Bitcoin, blockchain, cryptocurrencies, cyber security, machine learning (ML), robo-advising, and peer-to-peer lending (P2P). Supervisors have expressed concern about the risks arising from the application of these new technologies in the financial sector, which are also of interest to banks due to the risk of fraud, meaning that they must be proactive in protecting themselves and their customers. And in the meanwhile, new products are emerging whose functions and risks may not be clear. In an effort to study these, the European Union has funded a number of research projects.

A group of researchers led by Professor Paolo Giudici under the Horizon 2020 European Commission project A FINancial Supervision and TECHnology Compliance Training Programme (No 821552) addressed these issues by providing seminars to supervisors and all those involved in the financial markets (banks, insurance, asset management companies, startups) covering topics such as AI, Blockchain, cryptocurrencies, P2P, etc. The purpose was to explain the terms we mentioned above in an understandable way by presenting a pool of use cases that were accompanied by open-source code. The strong interest from the community and the ongoing research outputs contributed to the overall success of the programme.

Another EU-funded research project, the focus of this article, is currently being led by Professor Valerio Poti of the University College of Dublin and looks at FinTech and AI in the financial sector. Supported by European Cooperation in Science and Technology (COST), the FinTech and Artificial Intelligence in Finance (CA 19130) Project consists of three working groups (WG): WG1 focuses on the transparency in FinTech, WG2 focuses on the transparent versus black box models in the financial industry, and WG3 focuses on the transparency into investment product performance for clients.

Description of the COST FinAI Action Project

In the areas of FinTech and AI, a number of scientists are working to meet emerging challenges, which is a core strength of the COST FinTech and Artificial Intelligence in Finance (FinAI) Action.

The project’s network features ...