AI can "amplify risks" for fintechs, warns new report
The Bank of England report details the findings of a forum spearheaded by the Bank of England and the FCA scrutinising the merits, challenges and governance of AI within financial services.
The use of Artificial Intelligence (AI) by fintechs can bring benefits but can also “amplify risks” and “create new challenges”, a report has warned.
The report comes amid AI playing an increasingly important role in fintech, especially in areas like wealth management.
The report says that most of the risks involved in using AI models in financial services are not new but what is new is the complexity, speed and scale of the AI models.
And as more fintechs and other financial institutions reshape their data strategies to accommodate AI, the report highlights that many are calling for AI-specific data standards and other AI standards and regulations.
Specifically, the report highlights the importance of governing AI.
“A key characteristic of AI systems is their capacity for autonomous decision-making. This can have profound implications for how to govern the technology and its outcomes, including ensuring effective accountability and responsibility,” it said.
It advises that fintechs should try to leverage and adapt existing governance structures to manage AI.
“A centralised body within firms should set the AI governance standards. Overall responsibility for AI could be held by one or more senior managers, with business areas being accountable for the outputs, compliance, and execution against the governance standards. Transparency and communication are key elements of AI governance,” it says.
The report also advises fintechs on the importance of ensuring there “is an appropriate level of understanding and awareness of AI’s benefits and risks throughout the organisation” adding the senior leadership should have a clear role in overseeing AI".
Looking forward, the report also urges regulators to support the “adoption” of AI.
“Regulators could start by providing clarity on how existing regulation and policies apply to AI. To support innovation, guidance should focus on the outcomes expected and not be overly prescriptive. It could provide illustrative case studies and identify high-risk use-cases to focus on," it says.
It also floats the idea of setting up an industry-specific body for AI, along with voluntary codes of conduct, which would help build trust in AI.
“AI is a rapidly evolving and powerful tool which financial services firms are using in an increasing number of ways. It can bring benefits to consumers, businesses, and the wider economy, but AI can also amplify risks and create new challenges," the report adds.
"The AI models used in the financial system are becoming increasingly sophisticated. Their speed, scale, and complexity, as well as their capacity for autonomous decision-making, have already sparked considerable debate."