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Preparing for AI Compliance in the Banking Industry
As banks ramp up their technology spending, artificial intelligence (AI) is becoming a key investment priority. A recent NVIDIA survey found 91% of financial services companies are now using or assessing AI for diverse use cases—from fraud detection and portfolio optimization to operational efficiency and customer support.
For bank executives, it is abundantly clear that AI presents tremendous opportunities. However, leaders must stay vigilant about the challenges ahead. Government scrutiny of emerging technologies is rising as fast as adoption, and financial institutions must be prepared for incoming AI compliance demands. Resiliency will require banks to stay current on regulations and proactively shift toward ethical implementation.
AI Regulations Shaping the Banking Industry
The unexpected momentum of generative AI (GenAI) adoption has prompted national regulators to respond. In 2023, numerous federal agencies joined together to issue warnings about the dangers of implementing AI. This industry-agnostic statement focused on the potential for biased and discriminatory outcomes when using artificial intelligence—but regulatory concerns are steadily expanding to include issues like data privacy and transparency.
Recently, the Consumer Financial Protection Bureau (CFPB) disclosed its intention to establish federal laws centered on the use of AI in the financial services sector. The bureau has cited concerns regarding security, privacy, and the accuracy of AI-driven decision-making and services. Additionally, proposed state laws aim to tackle potentially inequitable lending decisions and mandate disclosures around how banks use AI.
The full scope of upcoming regulations has yet to come. However, these regulatory developments already point to the growing importance of ethics when leveraging AI.
Shifting Toward Ethical AI
For many financial executives, the growing scrutiny of financial institutions comes as no surprise. Banks play a pivotal role in economic development, and responsible practices have always been vital to sustainable growth and fair opportunity.
By proactively prioritizing ethics, financial institutions can achieve long-term AI compliance and reputational gains. Leaders can take the first step by assessing internal artificial intelligence practices in three key areas:
- Transparency: Employees should be able to clearly explain why models make certain choices—for instance, the factors it uses to identify potential money laundering. This allows banks to better address problems, prevent harm, and mitigate risks while empowering stakeholders to make informed decisions.
- Inclusivity: AI usage should promote equitable outcomes. Without human oversight and continuous optimization, models trained on low-quality datasets can enable discrimination against certain groups (such as low-income consumers).
- Security: AI systems, as well as the datasets they leverage, require thorough protection from unauthorized access. Effective safeguards prevent costly breaches and lawsuits while strengthening data privacy.
A comprehensive AI governance framework can help financial institutions bridge any identified gaps. This foundation, which encompasses the policies and guidelines for developing and managing artificial intelligence, encourages organization-wide alignment around ethical AI practices.
Implementing AI Governance Initiatives
AI governance is the path to safer, more ethical artificial intelligence usage. So, how can financial institutions start implementing it? Start by establishing core AI principles, such as “maintaining stakeholder trust” or “upholding our privacy promise.” These principles serve as a point of reference, helping the financial organization balance its pursuit of business goals with its commitment to customers.
Financial leaders can also establish standard operating procedures (SOPs) to further promote AI compliance and ethics. For example, Mastercard incorporates continuous monitoring and feedback loops into its processes as part of its governance framework. Banks can also take time to outline:
- Data management guidelines
- AI model benchmarking and auditing requirements
- Ongoing risk assessment practices
- Transparent reporting expectations for AI models
- Points of human oversight within AI processes
Including Chief Risk Officers (CROs) in strategic conversations can help banks optimize their framework as AI evolves. At AJ Consultants, we’re seeing a rise in demand for these threat mitigation specialists—who offer robust compliance expertise—as regulatory and consumer expectations grow.
Even without a CRO in place, establishing an AI governance committee can keep senior leaders accountable for the progress and enforcement of ethical guidelines. Appointed executives take the lead in fostering employee buy-in. They include team members in shaping the bank’s AI principles, welcoming employee feedback to generate positive worker engagement. Their transparent communication can also increase clarity and alignment across the organization.
Driving Long-Term AI Compliance with the Right Leadership Team
The development of AI regulations in the banking industry is still in its early stages. Government oversight will only expand in the coming years, urging companies to embrace more robust ethical standards. Financial institutions can get a head start by establishing an AI-savvy executive team with a commitment to both innovation and customer protection.
As an executive search firm with proven success in the bank and finance sectors, AJ Consultants provides industry expertise needed to strengthen your leadership team. We leverage our market knowledge—paired with a collaborative, data-driven approach—to handpick optimal senior leaders from our expansive network.