Which Way Forward for AI Regulation in Financial Services?

Mike Nonaka’s commentary was included in a Global Banking Regulation Review article covering the AI Safety Summit 2023, held at Bletchley Park in the UK. Mike comments on the Biden administration’s executive order establishing standards and best practices around artificial intelligence (AI) and what it means for the industry.

Mike said the AI executive order represents “an ambitious and comprehensive approach to cultivating AI innovation in the U.S. The order identifies eight principles and priorities that are to guide development and use of AI, and tasks various government agencies with action items and timelines for additional standards, reports, and potential rulemakings to spur growth and mitigate risk with respect to AI.”

Most notably for financial services professionals, Mike observed that the order encourages the Consumer Financial Protection Bureau (CFPB) and Federal Housing Finance Agency (FHFA) to consider using their authorities to require AI tools and other methodologies to mitigate fair lending risk and bias and disparities affecting protected groups. He added that the order also encourages independent federal regulators – such as the Federal Reserve, the Office of the Comptroller of Currency, and the Federal Deposit Insurance Corporation – to use the full range of their authority to address risks that may arise from AI, including risks to financial stability and third-party risks from AI service providers.