If the regulatory environment is not receptive to the use of artificial intelligence by financial institutions in fighting fraud or aggregating data, then customers will be the ones who suffer, Federal Reserve Governor Michelle Bowman said Friday. During a speech on the use of AI, Bowman outlined a broad approach to regulating the technology, advocating for a balance between being overly restrictive and too permissive.
“AI tools have the potential to substantially enhance the financial industry,” Bowman said. “In my view, the regulatory system should promote these improvements in a way that is consistent with applicable law and appropriate banking practices.”
Regulators must understand AI before they consider whether and how to change their regulatory approach, Bowman said. “As this technology becomes more widely adopted throughout the financial system, it is critical that we have a coherent and rational policy approach. That starts with our ability to understand the technology, including both the algorithms underlying its use and the possible implications — both good and bad — for banks and their customers.”
Regulators must also show an openness to the adoption of AI, she said. “We should avoid fixating on the technology, and instead focus on the risks presented by different use cases.”
“A posture of openness to AI requires caution when adding to the body of regulation,” Bowman added. “Specifically, I think we need a gap analysis to determine if there are regulatory gaps or blind spots that could require additional regulation and whether the current framework is fit for purpose. Fundamentally though, the variability in the technology will almost certainly require a degree of flexibility in regulatory approach.”
