Digital Economy Soundbite | AI services: is Big Tech too big?

Alongside the familiar reports of increasing use of AI in the financial sector, alarms are being sounded – including within the Bank of England – about the level of concentration of AI services in the hands of a few dominant providers. Echoing what we saw in the market for cloud services a few years ago, concerns include a lack of customer choice, difficulty in changing provider, and the impossibility of challenging one-sided and onerous contract terms. The failure of a "critical provider" – although unlikely – also highlights questions of operational resilience and the potential catastrophic effects on the economy.

As they stand, market conditions favour the tech giants. AI technology, by its very nature, needs significant financial and computing resources to be effective at scale which only the biggest players can provide. If they are data-rich, too, their position is even better. The rapid pace of development requires constant investment which few smaller providers can match and regulatory fines, unless at maximum permitted levels, may not prove much of a disincentive given the profits which can be made.

Should regulators intervene, and if so, how? The UK government's current focus is on driving economic growth. Regulators have been told to exercise their powers with this at the forefront, and AI is seen as pivotal. At the same time, the government's Modern Industrial Strategy sees the UK as a world leader in the financial services sector. The challenge will be to structure the market so both can thrive.