The Office of the Comptroller of the Currency and the Federal Reserve Board are among five federal financial regulatory agencies seeking input on how financial institutions use artificial intelligence (AI) and machine learning, and what risks might be related to these technologies.

The Federal Reserve and OCC together with the Federal Deposit Insurance Corporation (FDIC), Consumer Financial Protection Bureau and the National Credit Union Administration (NCUA) put out a call this week for public input on AI and machine learning in financial services. They are seeking input from financial institutions, trade associations, consumer groups and other stakeholders about the use of AI and machine learning, according to a joint announcement.

“The purpose of this request for information (RFI) is to understand respondents’ views on the use of AI by financial institutions in their provision of services to customers and for other business or operational purposes; appropriate governance, risk management, and controls over AI; and any challenges in developing, adopting, and managing AI,” the request for information noted.

In soliciting views on the use of AI in financial services, the agencies aim to determine whether any additional regulatory guidance or clarifications, “would be helpful for financial institutions’ use of AI in a safe and sound manner and in compliance with applicable laws and regulations, including those related to consumer protection,” an OCC spokesperson told Bank Automation News.

The document acknowledges the usefulness of both AI and machine learning, noting they are used for:

• risk management;
• cybersecurity;
• textual analysis;
• flagging unusual transactions;
• personalizing services; and
• informing credit decisioning.

The RFI also discusses other potential uses, such as faster underwriting.

But the request also identifies potential risks in AI, including the potential to introduce operational vulnerabilities and the risk associated with third-party partners. The regulators also question whether AI could lead to unlawful discrimination and heighten consumer protection risk.

“In this RFI, the agencies are seeking information on financial institutions’ risk management practices related to the use of AI; barriers or challenges facing financial institutions when developing, adopting, and managing AI and its risks; and benefits to financial institutions and their customers from the use of AI,” the request states.

It also raises 17 specific questions about AI’s use, including its explainability, algorithm development and challenges or impediments created by third-party AI providers.

Comments must be received by June 1, 2021.

As it stands now, the OCC’s guidance to its regulated banks fails to address technologies that rely on AI and machine learning, despite their rapid industry adoption for automation and other financial services tasks, BAN reported in February. At that time, a spokeswoman for the OCC declined to comment or to say when the regulator would update its guidance.

The core OCC guidance on vendor technology relationships has not been materially updated since 2013. The regulator has offered a selection of frequently asked questions, or FAQ, as a supplement to the 2013 guidance, but that FAQ — last amended in March 2020 — generally excludes guidance on the most current analytical technologies. However, in June 2020, the OCC did solicit feedback on AI and other digital technologies in an advance notice of proposed rulemaking. Google, Plaid, the American Bankers Association, Consumer Reports, and other vendors and interest groups responded to that request at the time.

“The use of AI does not present novel risks but may amplify certain existing risks that must be managed,” the American Bankers Association noted in its response. “ABA supports a principles-based approach that will provide a flexible framework for the use of AI that promotes innovation while ensuring that emerging risks are captured. With respect to banking, new regulations are generally unnecessary. Instead, the OCC should consider areas where it can clarify existing regulation to facilitate the use of AI and related technologies and ensure that these principles are applied consistently to all participants under its jurisdiction.”

The OCC regulates nearly 1,200 national banks and federal savings associations with combined assets of more than $14.1 trillion, including Citigroup, JP Morgan Chase & Co., and Wells Fargo & Co. The regulator’s annual budget exceeds $1 billion.

BAN also reached out to the Federal Reserve in February, but the body declined to comment about its regulation of AI and similar technologies.

Bank Automation Ignite, on April 13-14, is the event for inspiring automation initiatives and investment in financial services. At the virtual event, financial services professionals can discover new use cases and technologies that are accelerating automation in banking. Learn more and register at www.BankAutomationIgnite.com.