U.S. banking regulators are significantly increasing scrutiny of how lenders use artificial intelligence, as the rapidly developing technology permeates the financial industry. Its oversight by agencies such as the Office of the Comptroller of the Currency (OCC) and the Federal Reserve signals the rapid adoption of AI in complex tasks such as credit underwriting and regulatory monitoring, increasing the sector’s cybersecurity and fraud risks. Regulators are primarily focused on deepening their understanding of AI deployment.
During routine bank examinations, supervisors are now routinely pressing firms on various key aspects of their use of AI. This includes mapping the deployment of AI technology in high-risk areas such as lending, “know your customer” checks, and sanctions screening. Detailed questions address the presence of “kill switches” for data access, governance controls, client data security, and system shutdown. Regulators are also investigating human oversight, third-party risk management, subcontractor exposure, and contingency plans for potential failures.
A central concern for supervisors includes ensuring that AI systems do not exceed intended functions or gain unauthorized access to data, particularly given their ability to extract and link information. This raises significant risks around privacy, confidentiality and compliance. Banks must demonstrate robust controls, including model behavior and guardrails restricting access to data, with clear authorization for human intervention. Increasing reliance on third-party AI vendors is also a key focus. Regulators question whether providers meet strict governance and security standards and if there are exit strategies for violations. While AI’s rapid growth challenges regulators, officials are expected to rely on broad, rules-based oversight for now, as Federal Reserve Vice Chair Michelle Bowman recently highlighted.
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