AI Is New but Not Immune From Old Rules, Bank Regulators Say
Although financial regulators haven’t released specific AI-related rules, existing regulations could apply, senior officials warn
Financial institutions’ use of artificial intelligence should have risk controls in place to address possible drawbacks, senior bank regulators said, warning that old rules could be applied to the novel technology.
Even without AI-specific guidance from federal bank regulators, institutions could run afoul of existing rules, officials at the Federal Reserve Board of Governors and Office of the Comptroller of the Currency said Friday.
“There’s a lot of existing guidance,” Kevin Greenfield, the deputy comptroller for operational risk policy at the OCC, said at a panel discussion hosted by the New York City Bar Association. “It doesn’t need to be AI-labeled to be applicable.”
U.S. financial regulators have grappled with how to handle banks’ and other institutions’ growing use of AI, a technology that has been deployed in applications as diverse as fraud monitoring and product pricing. Five regulators, including the OCC and the Federal Reserve, in 2021 asked institutions for information on their use of AI, but so far they haven’t issued any sweeping guidance.
Despite the lack of new guidance, banks should already have risk management practices in place, David Palmer, a senior supervisory financial analyst at the Federal Reserve, said in the same panel discussion.
“If they don’t have the appropriate governance, risk management and controls for AI, they shouldn’t use AI,” he said.
Mr. Palmer said, in his personal view, a comprehensive set of AI-related rules might never come from banking regulators, and instead the agencies might issue more granular updates on their thinking.
“There could be a series of things issued…as we all learn more,” he said. “Things are moving so quickly and we’re all learning a lot.”
Regulators already have told financial institutions to comb through existing guidance for its possible applications to AI, Mr. Palmer said.
Federal Reserve regulators also have begun to examine how institutions are using AI, though at this point those probes have been conducted mostly as a way of educating the regulators, rather than to produce the types of findings that would emerge from a more formal examination, Mr. Palmer said.
Institutions should maintain a “healthy degree of skepticism” about the technology, and ensure they have enough oversight staff, he said.
“We want to confirm that our institutions [are] using it the right way, they have the proper governance, risk management controls over it,” Mr. Palmer said.