Fed exploring ‘supervisory clarity’ in banks’ use of AI, governor says

The application of artificial intelligence (AI) in financial services and risk management is possibly the target of a “request for information” to be issued by federal financial institution regulators, a governor of the Federal Reserve said Tuesday.

In remarks to a virtual academic symposium on AI hosted by the Fed Board in Washington, D.C., Gov. Lael Brainard said the Fed is exploring whether “supervisory clarity” is needed to facilitate responsible adoption of AI by banks and other financial institutions. “It is important that we hear from a wide range of stakeholders – including financial services firms, technology companies, consumer advocates, civil rights groups, merchants and other businesses, and the public,” she said.

Brainard said the Fed symposium Tuesday served to “introduce a period of seeking input and hearing feedback from a range of external stakeholders” about AI.

“It is appropriate to be starting with the academic community that has played a central role in developing and scrutinizing AI technologies,” she said.

While asserting that the Fed is committed to supporting banks’ efforts to develop and use AI responsibly to promote a safe, fair, and transparent financial services marketplace, Brainard also said the Fed, as a regulator, is also exploring an understanding the use of AI and machine learning for supervisory purposes. She said that the Fed needs “to understand the different forms of explainability tools that are available and their implications.”

“To ensure that society benefits from the application of AI to financial services, we must understand the potential benefits and risks, and make clear our expectations for how the risks can be managed effectively by banks,” she said. “Regulators must provide appropriate expectations and adjust those expectations as the use of AI in financial services and our understanding of its potential and risks evolve.”

Fed Gov. Lael Brainard: Supporting Responsible Use of AI and Equitable Outcomes in Financial Services