Treasury Seeks Industry, Academic Insight on AI Use, Risks – Source: www.databreachtoday.com

Artificial Intelligence & Machine Learning
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Next-Generation Technologies & Secure Development

Department Is Asking for Information About How AI Is Used in Financial Products

Rashmi Ramesh (rashmiramesh_) •
June 13, 2024    

The financial services industry is no stranger to artificial intelligence – leading the sector’s U.S. regulator to pose questions such as whether institutions can explain AI outcomes and the technology’s role in risk management and internal operations.

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A Wednesday request for information from the Department of the Treasury asks academics, financial institutions and industry advocates for details on how the technology is used in specific financial products.

“The Biden administration is committed to fostering innovation in the financial sector while ensuring that we protect consumers, investors, and our financial system from risks that new technologies pose,” Under Secretary for Domestic Finance Nellie Liang said.

AI is not a new technology in financial institutions, but banks are now using it for a wider array of functions, with increasing levels of maturity.

Treasury also asked for information on the challenges small banks face while deploying AI tools and the extent of their development in-house or by third parties. Stakeholders in the sector have long worried about institutions with lower budgets not being able to fund AI tools for themselves. Treasury in a report earlier this year raised alarms over the opening of a fraud detection capability gap between large and small financial institutions due to disparities in AI deployment (see: AI Opens Fraud Detection Gap, Says US Treasury).

Experts such as McKinsey & Co. advise forming strategic partnerships with technology firms that can develop third-party solutions and exploring low-code or no-code AI development platforms to reduce the technical barriers to entry.

Treasury has reportedly set up private partnerships to help smaller financial institutions develop defensive AI capabilities on par with their larger and wealthier counterparts.

Wednesday’s RFI is clearly not a one-off since officials appear have AI on their mind. Treasury Secretary Janet Yellen earlier this month said the Financial Stability Oversight Council will monitor AI’s impact on financial stability, facilitate the exchange of information and promote dialogue among financial regulators. “Given how quickly AI technology is developing, with fast-evolving potential use cases for financial firms and market participants, scenario analysis could help regulators and firms identify potential future vulnerabilities and inform what we can do to enhance resilience,” she said.

The Treasury has been reviewing AI use cases and warning of its risks and has also been deploying the technology in its own department for a good part of the year.