03 Aug BCBS – Issued paper on regulating AI in the financial sector
August 3, 2021
Overview: Artificial intelligence (AI) has potential to greatly improve financial services delivery. Several financial authorities have recently began developing frameworks, outlining their expectations regarding AI governance and use by financial institutions. Common guiding principles on reliability, accountability, transparency, fairness, and ethics. In general, the existing high-level governance, risk management and modeling requirements for traditional models already cover these AI principles. Key difference in regulatory requirements for traditional and AI models is stronger emphasis for latter on human responsibilities in order to prevent discrimination. Emerging AI principles are useful, but growing calls for financial regulators to provide more concrete practical guidance given the challenges in implementing the principles.
Challenges: Speed and scale of AI adoption by institutions, greater touchpoints with ethical and fairness issues, technical construct of AI algorithms, and lack of explanations of modeling. Challenges call for proportional and coordinated regulatory and supervisory response. As more specific regulatory approaches and supervisory practices emerge, global standard-setting bodies might be in a better position to develop standards in this area.
For more information, visit www.bis.org.