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Congress Weighs Impact of AI’s Growing Adoption in RegTech Space  

Top finance officials expressed great uncertainty about the widespread adoption of artificial intelligence (AI) in the financial services industry at a recent congressional committee meeting focused on “RegTech.”

capitol 720677 640smallThe crux of the meeting, which was entitled “Keeping Up with the Codes–Using AI for Effective RegTech” and included several speakers testifying before the Task Force on Artificial Intelligence, was to investigate ways AI could be leveraged to fairly and efficiently improve compliance in the financial services industry.

Among those who testified was Kevin Greenfield, deputy comptroller for Operational Risk Policy in the Office of the Comptroller of the Currency. “Use of advanced analytical tools is not new, and banks have been employing mathematical models to support operations for some time. However, banks are now introducing AI tools to support complex banking operations,” Greenfield said. “While we have seen many large banks develop these tools internally, AI tools and services are becoming more widely available as third-party firms are increasingly offering AI products and services to banks of all sizes.”

The task force notes AI vendors anticipate the RegTech will continue its pace of significant growth in coming years and will reach a global market size of $55.28 billion by 2025. Further, some AI industry estimates prognosticate a compound growth rate as high as 52.8% annually.

Greenfield warned, though, these tools, while offering many potential benefits, also pose a great deal of risk if they are not properly controlled and managed. “Potential adverse outcomes can be caused by poorly designed models, faulty data, inadequate testing, or limited human oversight. Banks need effective risk management and controls for model validation and explainability, data management, privacy, and security regardless of whether a bank develops AI tools internally or purchases through a third party,” he added.

From Twitter

CFTE @CFTE_Edu

"The 5th webinar of the @cyberport panel discussion will help bring together the views of industry experts in the RegTech sector to help understand the concept of Know Your Data (KYD), which requires businesses to have knowledge of data lineage & systems. https://twitter.com/CFTE_Edu/status/1526511213252907009/photo/1"

There is also a growing concern the nascent technology could inadvertently lead to inappropriate financial services practices, something lawmakers said they believe may require legislative remedy.

“ … as AI programs have grown in popularity, so have concerns about potential adverse outcomes arising from their use. Algorithmic bias, explainability, and transparency are major areas of concern surrounding the potential adoption of this new technology,” according to the committee. “Some policymakers have expressed concerns that the use of AI technologies could result in financial market instability or discrimination against protected groups.”

Proposed legislation addressing these concerns includes:

  • H.R. 2989, also known as the Financial Transparency Act of 2021, sponsored by Rep. Carolyn Maloney, which would require federal agencies to adopt standards and make data electronically searchable
  • H.R. 7022, sponsored by Rep. Bill Foster, which would give the National Credit Union Administration and the Federal House Finance Agency authority similar to other banking regulators with respect to oversight of third-party vendors

According to information from the Committee on Financial Services, testimony was also provided by:

  • Melanie Hall, commissioner, Division of Banking and Financial Institutions in Montana, and chairwoman of the board of directors at the Conference of State Bank Supervisors;
  • Kelly Lay, director, Office of Examination and Insurance, National Credit Union Administration; and
  • Jessica Rusu, Chief Data Information and Intelligence Officer at the Financial Conduct Authority, U.K.
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