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Home Alerts

AI Risk to Financial Systems Warned

December 19, 2023
Reading Time: 2 mins read
in Alerts
AI Risk to Financial Systems Warned

U.S. regulators, specifically the Financial Stability Oversight Council, have expressed concerns about the risks posed by artificial intelligence (AI) to the financial system, categorizing it as an “emerging vulnerability” in their annual report. While recognizing the potential for AI to drive innovation in the financial services sector, the council also underscored certain risks associated with its rapid adoption.

The deployment of AI in financial services is expected to increase to enhance efficiency and operational accuracy, but the council warns that this acceleration could introduce hazards, including cyber threats and model risks, potentially impacting financial stability. The council emphasized the importance of responsible innovation in the realm of AI and urged adherence to existing principles and rules for risk management. Treasury Secretary Janet Yellen highlighted the need for supporting innovation while applying established risk management practices.

The report specifically mentioned generative AI models, which utilize large datasets to create new content, posing operational risks related to data controls, privacy, and cybersecurity. The “black box” nature of some AI approaches, with challenges in explainability, was also noted as a potential obstacle for organizations to understand the basis of AI-generated conclusions, including assessing accuracy and potential bias. Furthermore, the council drew attention to “complicating factors” associated with generative AI, such as hallucinations and inconsistencies in output over time.

It stressed the importance of financial services companies applying general risk management requirements to AI, similar to any other technology, and staying informed about regulatory developments. The council recommended continuous monitoring of AI developments to ensure oversight structures address emerging risks while supporting efficiency and innovation. In summary, the report underscores the necessity for vigilance in the development, deployment, and regulation of AI in the financial sector, emphasizing the challenges and risks associated with its increasing complexity.

Reference

  • US Regulators Caution on AI Risk to Financial Systems
Tags: Artificial IntelligenceCyber AlertCyber Alerts 2023Cyber RiskCyber threatDecember 2023
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