Covering Disruptive Technology Powering Business in The Digital Age

(Reuters) – Banks must anticipate risks from using Artificial Intelligence (AI) and Machine Learning (ML) in their operations as part of their day-to-day governance, a top global banking regulator said on Wednesday, noting how AI risks can potentially lead to disastrous results.

Pablo Hernandez de Cos, Governor at Bank of Spain (Photo Courtesy of Bank of Spain)

There are unanswered questions on whether the use of AI or ML in banking is a net positive or negative to global financial stability, said Bank of Spain Governor Pablo Hernandez de Cos, who chairs the international Basel Committee on Banking Supervision.

“My main message is that the use of AI in banking raises important prudential and financial stability challenges,” de Cos said in a speech in Washington. “Left unchecked, such models could potentially amplify future banking crises.”

Regulatory Baselines Needed to Manage AI Risks

Digital innovation will further fuel cross-border and cross-sectoral financial interconnections, requiring collaboration among central banks and regulators to achieve an appropriate regulatory baseline to oversee the use of AI and ML and, in the process, mitigate AI risks, de Cos said.

“When it comes to banking, it is critical that banks anticipate and oversee the risks and challenges posed by AI/ML—both at the micro and the macro level—and incorporate them in their day-to-day risk management and governance arrangements,” de Cos said.

The Basel Committee will soon publish a more comprehensive report on the digitalisation of finance and its implications for regulation and supervision, he said. Expected to be included in said report are the far-reaching effects of AI risks and the ways banks can avoid or mitigate them.

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