Fed’s Brainard Highlights Need for Responsible Oversight of AI

As the financial industry continues to find new uses for artificial intelligence capabilities, Federal Reserve Governor Lael Brainard outlined regulators’ approach to the supervision of these new technologies in a speech today. “Regulation and supervision need to be thoughtfully designed so that they ensure risks are appropriately mitigated but do not stand in the way of responsible innovation,” she said.

Brainard pointed to several existing regulations and supervisory guidance that can be applied to AI, including the Fed’s guidance on model risk management and vendor risk management. In addition, because AI “is likely to present some challenges in the areas of opacity and explainability,” strong controls are needed around the data being used in complex AI models, she emphasized.

“Just as with conventional models, problems with the input data can lead to cascading problems down the line. Accordingly, we would expect firms to apply robust analysis and prudent risk management and controls to AI tools, as they do in other areas, as well as to monitor potential changes and ongoing developments.”