Financial Services & AI Compliance
by Melany Joy Beck
June 13, 2024
Financial services businesses could find themselves challenged by AI transparency requirements for banking regulations compliance.
Increasingly banking, financial services, and related businesses are leveraging artificial intelligence (AI) to gain significant competitive advantage through enhanced efficiency, accuracy, and customer satisfaction.
However, the adoption of AI in this sector has brought both opportunities and challenges, with several key issues to consider.
Some AI challenges that affect this industry include the use of copyrighted materials in generated outputs, bias in lending or other decisions, lack of traceability due to the perceived ‘black box’ effect, data privacy concerns, and cyber security risks, all within an evolving global regulatory environment.
Risk and Compliance Concerns for AI
For banking and financial institutions, running afoul of governmental regulations can result in significant penalties.
According to a recent report, last year over $6.6 billion in enforcement actions were issued to financial institutions across the globe for failing to comply with anti-money laundering (AML) regulations alone. In fact, the value of penalties imposed by regulators worldwide increased by 57 percent in just one year.
Emerging global AI regulations are projected to further increase these numbers as regulating bodies provide additional guidance to support this technology’s ethical use.
In September of 2023, the United States Consumer Financial Protection Bureau (CFPB) issued guidance about the legal requirements to which lenders must adhere when using artificial intelligence. This included the need to provide “specific and accurate reasons when taking adverse actions” against consumers.
In the European Union (EU), the Artificial Intelligence Act (AI Act) was adopted by Parliament on March 13, 2024. The first comprehensive AI law, the AI Act establishes clear obligations for high-risk systems such as banking to “assess and reduce risks, maintain use logs, be transparent and accurate, and ensure human oversight.”
These regulations and subsequent enforcement actions point to a singular need for financial services businesses to be able to know and trust their AI sufficiently well. For many businesses, AI models essentially operate as black boxes, making it challenging to understand their decision-making processes.
In financial services, transparency is crucial for regulatory compliance and customer trust. Ensuring that AI systems provide interpretable explanations for each decision is essential.
Solutions for AI Transparency
With regulators having already begun the drive for transparency and explainability that exceed the current capabilities of financial institutions, these businesses are now tasked with figuring out how to deliver on this visibility while continuing to build out their AI or machine learning (ML) model complexity and operational capabilities.
Monitoring and filtering of AI model input (training and queries) alone are necessary, but not sufficient for AI governance. What is required is the ability to understand the relationship between these inputs, model operation, and the results.
Specifically, the ability to understand and modify the use of data and training content, provide attribution to those inputs with the results, and being able to identify and build on the most valuable and trusted content in operation is key.
In other words, organizations will need to have the receipts for black-box behaviors and their use.
Get Started with AI Governance
In this case, the first step of AI governance is insight and measurement. Authentrics.AI is an artificial intelligence, machine learning, and neural network assessment solution developed to provide the kind of insight and transparency that supports regulatory compliance in the area of AI and machine learning for financial services businesses.
Banking and financial business leaders interested in learning how to expand their capabilities in AI transparency and optimization can take advantage of a unique opportunity to connect with Authentrics.AI CEO John Derrick at the upcoming Evident AI Symposium in London on Wednesday, June 19, 2024.
The Evident AI Symposium is a one-day gathering of the international banking community, along with independent experts, innovators and policy makers.
To learn more about this opportunity or to discuss your AI assessment needs, contact us today.
