OCC Flags AI as Emerging Risk for Financial Institutions
A leading federal banking regulator, the Office of the Comptroller of the Currency (OCC), has issued a warning to banks about the potential risks associated with incorporating artificial intelligence (AI) tools into their systems. In its semi-annual risk report, the OCC’s National Risk Committee highlighted AI as an emerging risk for financial institutions as they consider the use of AI tools for internal and customer-facing purposes.
Risks Associated with AI Implementation
The OCC outlined various risks that can arise from the use of AI, including lack of explainability, reliance on large volumes of data, potential bias, privacy concerns, third-party risk, cybersecurity risks, and consumer protection concerns. The agency also mentioned that the use of generative AI poses additional risks, such as providing inaccurate responses that appear credible.
Regulatory Frameworks for AI
The OCC’s warning comes at a time when federal agencies are working on developing regulatory frameworks for AI use in both the private sector and the government. President Biden’s executive order on AI instructed agencies to establish regulations as AI becomes more prevalent in daily life.
Potential Benefits and Challenges
While the OCC acknowledged the potential benefits of widespread AI adoption, such as cost reduction, increased efficiencies, improved products and services, strengthened risk management, and expanded access to credit and banking services, it also emphasized the significant challenges that come with AI implementation. These challenges include compliance risk, credit risk, reputation risk, and operational risk.
Managing AI Use Safely and Fairly
The OCC advised banks to manage AI use in a safe, sound, and fair manner, commensurate with the materiality and complexity of the particular risk involved. Banks should identify, measure, monitor, and control risks arising from AI, similar to how they handle other technologies. The agency emphasized that existing safety and soundness standards and compliance requirements are still applicable, even if they don’t specifically address the use of AI.
Support for Safe and Sound Use of AI
The OCC clarified that it is “technology neutral” and supports efforts by banks to explore safe and sound uses of new and emerging financial technology, including AI. However, the agency will remain mindful of the challenges and risks posed by AI’s use and will continue to monitor this rapidly evolving area, including generative AI use.