Banks have to set down the rules of the game vis-a-vis use of AI right now: RBI DG Rabi Sankar
Banks have to set down the rules of the game vis-a-vis use of Artificial Intelligence (AI) right now because as time passes, it may become more and more difficult to control the outcomes, according to RBI Deputy Governor T Rabi Sankar.
“We need to start thinking about it now…First and foremost is the legal risk. The speed of technology is going to change very rapidly, going forward. This means law has to move forward to catch up with it,” Rabi Sankar said at the Indian Banks’ Association’s Technology Awards function.
He underscored that experts who understand technology, banking and law need to put their heads together towards this end.
“This has become all the more important in the context of Digital Data Protection Act as lot of changes will be required in banks’ systems. This is an immediate challenge for us,” the Deputy Governor said.
RBI report
The rise of AI embodies the potential to revolutionise various aspects of banking, non-banking and financial markets, per RBI’s latest report on Trend and Progress of Banking in India.
“AI is increasingly being used in areas such as asset management, algorithmic trading, credit underwriting, and blockchain-based financial services. AI is expected to transform financial services segment by spurring the creation of new products and services, opening up new markets and industries, and paving the way for innovation.” the report said.
The report noted that fraud detection, optimisation of information technology (IT) operations and digital marketing are some other areas where widespread adoption and heavy use of AI tools has been reported. Banks can reap the benefits of such applications through more efficient use of resources enabling better customer experience.
The use of AI in finance could, however, amplify risks already present in the financial sector and induce new overriding risks, including potential financial consumer and investor protection considerations.
“The black box nature of AI models makes it difficult to understand how they generate results which may be incompatible not only with existing laws and regulations, but also with internal governance, risk management and control frameworks of financial service providers.
“…As the use of AI in the sector grows, so does the need for governance frameworks and regulations to ensure that ethical practices are implemented to keep pace with the rapidly changing landscape,” the report said.
Rabi Sankar underscored that cyber security is an area which banks have to look at very closely and differently.
“It is not a question of if, but when the system will be breached…risk might change in waves. So, we might have to completely reconfigure our systems…,” he said