As the race to adopt artificial intelligence (AI) models in the financial sector gains speed, the Financial Stability Board (FSB) is proposing new guidance designed to help financial firms embrace AI responsibly.
On Wednesday, the global policy group issued a consultation paper that proposes 12 “sound practices” for firms to follow when incorporating AI, given the risks and challenges that accompany the use of AI in the financial sector.
The FSB identified several kinds of financial stability risks, including the risk posed by a growing reliance on external service providers, increased market correlation, cybersecurity threats, model risk, data quality and governance issues.
The report also discusses an array of other risks, such as consumer protection and market conduct risks, including the risk of unfair treatment and client harm, the potential for mis-selling and unsuitable recommendations and the challenge of overseeing AI-based processes.
“Managing these risks well will promote sustained value creation by financial institutions through AI adoption. It will also help minimize risks to financial stability as AI adoption scales through the financial sector,” the paper said.
To that end, the FSB is proposing practices that cover firm-wide AI governance; the management and mitigation of AI risks during both the development and the implementation of these tools; and, finally, cyber, technology and third-party risks.
The proposed practices aren’t intended to establish any new standards, or to prescribe how firms adopt AI, the FSB said. Instead, they are intended to guide the senior management and boards of financial firms, “as they consider business strategy, technology adoption, and risk management in an increasingly AI-enabled environment.”
They also seek to “foster coordination, cooperation and information-sharing among stakeholders, including financial institutions and supervisors, within and across jurisdictions,” the paper noted.
“The recent developments in frontier AI models highlight the dynamic nature of this technology and the rapid pace at which its capability evolves. The FSB’s sound practices are designed to help financial institutions navigate their AI adoption responsibly in a rapidly changing technology landscape,” said Ho Hern Shin, lead of the SRC workstream on AI and deputy managing director of the Monetary Authority of Singapore, in a release.
Comments on the report are due by July 22. The FSB said it will issue its final report in October.