Regulators must be open to the use of artificial intelligence in banking and know that successful adoption requires communication and transparency, said Federal Reserve Gov. Michelle Bowman.
“We should avoid fixating on the technology, and instead focus on the risks presented by different use cases,” Bowman said Nov. 22 during a banking conference in Washington, D.C. “These risks may be influenced by a number of factors, including the scope and consequences of the use case, the underlying data relied on, and the capability of a firm to appropriately manage these risks.”
Regulatory agencies must be open to sharing information to ensure AI is sufficiently regulated, Bowman said. She also supports analyzing any regulatory gaps or blind spots that could require more regulation and whether the current rules are sufficient.
“As we engage in ongoing monitoring — and expand our understanding of AI technology and how it fits within the bank regulatory framework — I think it is important to preserve the ability of banks to innovate and allow the banking system to realize the benefits of this new technology,” Bowman said.
Regulators should develop and acquire staff expertise to better understand AI, she added. Regulators are often trying to catch up to innovative banks, she said, and therefore neither understand how the technology works nor know the positive uses of AI within banks.
AI could benefit bankers in multiple ways, Bowman said, including by summarizing one report or aggregating information from sources on the same or related topics. AI can also check for potential biases or errors on human-produced analysis, she added, while fighting fraud and increasing access to the banking system.
Bowman sees AI regulations that are too harsh as pushing activities away from the regulated banking system or altogether preventing the use of the emerging technology.
“If our regulatory environment is not receptive to the use of AI in these circumstances, customers are the ones who suffer,” she added. “AI will not completely ‘solve’ the problem of fraud — particularly as fraudsters develop more sophisticated ways to exploit this technology. But it could be important if the regulatory framework provides reasonable parameters for its use.”
In October, fellow Federal Reserve Gov. Lisa Cook said regulators should establish a consensus on the benefits and disadvantages of establishing rules for AI. She was optimistic on the benefits of the emerging technology, noting businesses can use it to innovate without a significant investment.
Nearly 40 percent of community banks include AI and machine learning in their strategic vision to address risk management and customer service, according to a Bank of New York survey.
