Financial services institutions across the world are being encouraged by international financial services body the FSB to follow 12 guidelines when implementing artificial intelligence (AI).
The FSB, which monitors and makes recommendations about the global financial system, has produced what it describes as “12 sound practices” that financial institutions should consider when adopting AI.
“The 12 sound practices emphasise the importance of organisation-wide AI governance and highlight considerations for managing risks throughout the AI lifecycle,” said the FSB, which is chaired by Bank of England governor Andrew Bailey.
In its work, the FSB brings together national authorities responsible for financial stability, international financial institutions, regulators and supervisors, as well as committees of central bank experts. The FSB said that the guidelines seek to promote coordination, cooperation and information-sharing among financial institutions and across the international financial sector in relation to the rapid adoption of AI.
‘Sound’ advice
The 12 practices are in two groups, the first of which emphasises “the importance of organisation-wide AI governance as financial institutions adopt AI”.
It recommends board and senior management play a pivotal role in setting and overseeing alignment between AI adoption and business models, risk appetite and strategy; maintaining appropriate governance framework with well-defined roles and responsibilities; incorporating AI risks into the risk management framework and effective documentation of AI use; and undertaking continuous learning and adaptation.
The second group of practices set out “a comprehensive framework for managing risks throughout the AI lifecycle from AI development and deployment”.
It focuses on effective and systematic assessment of the materiality and risks associated with AI use cases at inception and thereafter; selection of appropriate AI technologies; appropriate data governance; explainability of various types of AI and consideration of compensating controls; evaluation of the performance of AI use cases; appropriate and effective human oversight; management of AI-related cyber and information and communication technology (ICT) risks; and management of risks from third-party AI dependencies.
“The sound practices serve as a practical toolkit that financial institutions can tailor to their specific context and risk profile and integrate into existing frameworks, including those for cyber and third-party risk,” said the FSB.
It said that as AI technologies and applications evolve, it will monitor developments and update the sound practices as necessary.
AI breaking new ground
Banks are using AI across their businesses to reduce human intervention, with the technology beginning to reach new areas of the business, way beyond simply automating laborious processes.
For example, AI agents could replace humans trading in financial markets in a few years, according to HSBC investment bank boss Michael Roberts.
The bank recently announced cuts to its human wealth managers with plans to replace them with AI – and traders could soon face the same prospect, with the combination of advances in AI, quantum computing and distributed ledger meaning they replace humans trading in financial markets, said Roberts.
Another area where AI will play an increasing role is in supporting investment bankers in deal making, according to Bahadir Yilmaz, chief analytics officer at ING.
“There are teams of 10-20 people working on a deal for many, many months. This starts with going to clients for early-stage meetings, and when you go to these meetings you have to be prepared. You probably saw a lot of Wall Street movies, and there, you see a lot of analysts working through the paperwork and creating folders. This is an iconic cliche scene, but that preparation can be done with AI today.”
