On March 29, the Federal Reserve Board, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the National Credit Union Administration (the “Federal Agencies”) issued a request for information (“RFI”) from financial institutions, trade associations, consumer groups, and other stakeholders on the financial industry’s use of artificial intelligence (“AI”). The RFI broadly seeks insight into the industry’s use of AI in the provision of financial services to customers and appropriate AI governance, risk management, and controls. While the RFI should not come as a surprise (for several years, regulators have highlighted the growing use of AI and machine learning by financial institutions and technology firms), it is the most coordinated effort to date by the Federal Agencies to better understand the potential benefits and risks of AI. It follows a speech earlier this year in which Federal Reserve Board Governor Lael Brainard previewed the potential for additional “supervisory clarity” in this area.
The Federal Agencies acknowledge in the RFI the importance of AI to the industry and its customers, including with respect to AI’s use in flagging unusual transactions, personalization of customer services, credit decision-making, risk management, textual analysis (handling unstructured data and obtaining insights from that data or improving efficiency of existing processes), and cybersecurity. The RFI also notes the potential safety and soundness risks of AI, including operational vulnerabilities, cyber threats, information technology lapses, third-party risk, and model risk. Consumer risks are also identified, such as risks of unlawful discrimination, unfair, deceptive, or abusive acts or practices, and privacy concerns. In addition, the RFI discusses the importance of “explainability,” which refers to “how an AI approach uses inputs to produce outputs.” Some AI approaches exhibit a “lack of explainability” for their overall functioning or how they arrive at individual outcomes, which can give rise to challenges in legal compliance, audit, and other contexts.
The RFI seeks comment on the following areas:
Fair lending appears poised to be a central supervisory concern of the Federal Agencies when evaluating AI design and usage. More questions are posed concerning fair lending than any other area in the RFI. In particular, the Federal Agencies seek input on the following questions:
The RFI reflects an increasing interest in AI by the Federal Agencies, especially as it relates to the risks posed to consumers and the safety and soundness of financial institutions. We remain attentive to trends and developments in this ever-evolving space and would be happy to discuss any questions or concerns with respect to the use of AI in financial services.