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FINRA releases report on impact of quantum computing on securities industry

On Behalf of | Nov 8, 2023 | FINRA Compliance

The Financial Industry Regulatory Authority has released a report on quantum computing and its implications for the securities industry, Financial Advisor reports.

Quantum computing utilizes the principles of quantum mechanics, a branch of physics, to solve problems that are too large or complex for traditional computers.  While it is still in its early stages, FINRA said that numerous financial institutions have begun experimenting with the technology given its potential for improving computer speed and power.

Among the firms who have already adopted quantum computing to enhance their business operations are Goldman Sachs, JPMorgan Chase and HSBC.  “While reportedly only one percent of companies budgeted for quantum-related expenses during 2018, by some estimates as much as 20 percent may do so in some form by 2023, with up to $850 billion in investments anticipated over the next 30 years,” the report said.

The FINRA report notes at least three potential areas where quantum computing may have a significant impact on the securities industry.

-The technology can efficiently analyze and process numerous financial outcomes in real time, allowing institutions to enhance optimization systems for executing and settling trades, and managing portfolios.

-It may allow firms to better understand and account for uncertainty related to market activity by allowing them to run simulations that might be impossible to run on traditional computers. With quantum computing, a risk assessment that may currently take days could be done in hours to near real-time.

-Quantum computing is seen as a potential accelerant of artificial intelligence, with the potential to enhance the ability to process and analyze large data sets while also presenting novel risks.

The report adds that firms considering whether to incorporate quantum computers may consider four key regulatory issues: cybersecurity, third-party vendor outsourcing, data governance and supervisory controls.  Cybersecurity was said to present particular challenges due to the technology’s potential for challenging the encryption safeguards used today to safeguard client information and assets.

FINRA said it conducted the study to draw attention to the opportunities and risks posed by quantum computing.

“We look forward to collaborating with the securities industry to understand the implications that quantum computing could have on the financial markets,” said Haimera Workie, Vice President and Head of the Office of Financial Innovation for FINRA. “From ways the technology could bolster the industry to the threats it potentially presents, it is important to collectively consider the implications of this technology.”

The research was conducted by FINRA’s Office of Financial Innovation. FINRA is seeking comments from firms, market participants and others currently exploring quantum computing, with those comments requested by March 15, 2024.

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