Weekly Wrap: Bank, vendor opinions on AI regulations and Envestnet acquisition

This week, Bank Automation News drilled down on filings with the Office of the Comptroller of the Currency, examining what banks and vendors have said about the potential for new regulations on artificial intelligence and other advanced technologies. Both banks and vendors agreed that more clarification on regulations is necessary to adoption, particularly for small banks that might be looking to leverage third-party providers. In other news, the BAN team highlighted Envestnet’s acquisition of automated savings tool Harvest Savings & Wealth Management and explored the industry trend to give customers more personalized financial advice. Find this and more in today’s episode of the Weekly Wrap, featuring Publisher JJ Hornblass and Associate Editors Jaspreet Kalra and Loraine Lawson. 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 . Subscribe to The Buzz Podcast on iTunes , Spotify , or download the episode .

The following is a transcript generated by AI technology that has been lightly edited but still contains errors. JJ Hornblass Hi everyone, I'm JJ Hornblass and welcome to the Buzz from Bank Automation News where we chart the future of banking automation technology. This is our weekly wrap for what's happening in the industry for April nine 2021 for beginning thanks to bank automation news, advertisers, MX, Narmi and NVIDIA for their support. So thank you to them. And pleased to be joined by Loraine Lawson and Jaspreet Kalra of the Bank Automation News editorial team hello to both of you. In first in general technology news, hackers have scraped data from 500 million LinkedIn users, about two-thirds of the platform's user base, and have posted that that scraped data for sale online. cryptocurrency mining company Riot blockchain says it will buy Texas-based Bitcoin hosting facility windstone for 80 million in cash and around 570 million in stock. And finally, one trust which offers Enterprise Compliance tools raised $210 million in a series C extension led by soft banks vision fund to bringing its total venture funding raised to 920 million in banking automation industry news last week, the Office of the Comptroller of the Currency, the Federal Reserve Board, in three regulatory bodies put out a call for public input on how artificial intelligence and machine learning are being used in the financial services sector and the risks they posed. Let's first start with a general background on this request for public input. And then get into kind of the two sides meaning the input from financial institutions and then input from fintechs or or technology vendors. So Jaspreet, do you want to maybe kick it off? And give us a little background on this request for information? Jaspreet Kalra Right? During fisted recognition is sort of very wide ended in the way that it looks at AI and ml technologies and how they're being used in the financial services sector. And a total of 17 questions were put together by these regulatory bodies that go into some things like how it is AI driven credit underwriting, intersect with fair lending laws or say, how is automated procedure, our do automated procedures and data analysis effect and intersect with data privacy laws that are being affected across the world, and we will see going on legislation in the United States as well. So I mean, seeing it from a very broad angle, it would seem that regulators are pretty curious about how financial institutions are implementing these technologies, while at the same time keeping a keen eye on how to protect consumer security, consumer data and consumer privacy. And, of course, ensure that all of the new techniques that come in, are in compliance with existing regulations, be it fair lending laws, be it data privacy concerns, or even something as simple as you know, not just discriminating based on the basis of a flawed model or a mistake that gets baked into the system itself.JJ Hornblass The oftentimes these things take take time to develop. Is there a sense of whether this was a Trump administration initiative that that ended up kind of getting released now, or was this a, you know, Biden administration request for information?Jaspreet Kalra I'd say both because back in July 2020, when the whole payments charter conversation was going on when crypto banks want to wanted to establish themselves and figure out whether they can be chartered banks or not, then acting Comptroller of the OCC and Brian Brooks had put out a long information request as well, which was much more wide ranging but also invited inputs on AI and ml techniques. So the conversation was kicked off there. But then in the middle, we had the election and plus the pandemic was going on as well. So I guess something's got lost in between. And now, the OCC has sort of come back to this table, seeing how AI and ml continuing their expansion of usage. So I think it's like a puzzle. We're sort of like a pass on pass on the baton sort of thing here.JJ Hornblass So of these 17 questions, which do both of you it's just about the which of those One or two are kind of really the most sensitive or more most crucial for the industries there. Yep. Do you have a feeling for that?Jaspreet Kalra Or Indiana data?Loraine Lawson I think a major question that they raised had to do with, of course, algorithm development, which some algorithms have been found to either have bias integrated into them through the coder or possibly through how they learn. And another is the challenges or pediment screen about third party providers. I think that is where there's probably the most confusion when it comes to what regulators expect. And hopefully they'll get some clarification for that. That is certainly one of the reasons why vendors say that there's been slow adoption of some of these AI platforms.JJ Hornblass I mean, and that's because of the confusion or because it's clear that regulators are looking into the third party. providers, and and I guess, and also the responsibilities between the first party, financial institution and the third party provider,Loraine Lawson it's because there's confusion, they don't, they don't know what regulators are going to do about third party providers. And so banks are just a little gun shy of, of, you know, working with third party provider who could give them the advanced technology functions. When they don't know well, regulators are going to react.JJ Hornblass Is that jaspreet? Is that what the financial institutions argued in some of their comments?Jaspreet Kalra Oh, certainly, yes, I mean, groups like the ABA, the US Bank cooperation BNC, all of this sort of referred to this uncertainty in a tangential way. Like some of their concerns, were around something like, say, the GDPR, which requires an algorithm to be explainable, which basically means that using regular human language, you should be able to explain how an algorithm made its decision, which, when data scientists design a product is not very high, not a very high level of concern. So you're seeing all these questions being raised by regulators at the same time, the technology is moving so fast. So banks are really like big banks, sure, they can invest in their own products, they can develop their own things, but especially you see, a midsize bank, or a midsize financial institution would have a lot more questions about what if this goes wrong? Do we have liabilities that, and they would have much less sort of cushion to be able to face that liability, which is where you're seeing a slow uptake of these new technologies, JJ Hornblass which in the financial institutions was kind of most pointed or folk ciphers about about these? in their response, I mean, which was, was a one that kind of stuff stood out as being particularly particularly virulent or, or, or particularly, you know, I, you know, specific or pointed about what they were saying. Jaspreet Kalra I think all of them had some sort of, you know, some sort of optimism in terms of what sort of efficiency these techniques can add to their processes and how it can evolve the process of banking itself. But the American Bankers Association was the most extensive in terms of how they looked at the ecosystem. I guess that also because they receive a lot of inputs from institutions of different sizes. So they were able to really sum up the sort of questions that uncertainty raises, and they were very acknowledging of the fact that efficiencies are a big upside to this new technology. But the unexplained parts are going to be the biggest obstacle in terms of getting adoption going. So I think the ABA really summed up the sort of position of the industry very well, in its comment that it filed with the OCC Unknown Speaker was JJ Hornblass a surprising point that was made from the financial institution side. Was there something that sort of stood out as as creating perhaps a roadblock, a technology Roadblock, or regulatory roadblock? Or or was there some sort of admission that you hadn't been expected? Jaspreet Kalra More most of the financial institutions that did file their inputs said that they urge the OCC to take a technology agnostic approach, which, to me, it seems like a lot of them are also saying that don't penalize people for doing things the old way. That just because something was being carried on on paper in a community bank doesn't mean they're wrong. They just haven't caught up yet. So I think that was the most standing out point that everyone was making that please don't you know, this criminate against us on the basis of the technology we use. And banking is already facing a lot of competition from Neo banks and big tech entering into it. So I think they're really conscious about the fact that we should all have the same level playing field and not create special categories. This is something that even jamie diamond referred to in his letter into the Millennium shredder shareholder letter, about how these new companies don't have the same sort of regulatory and compliance requirements that big banks often do, which creates uneven playing field citing. They're excited about the technology, but they also want a level playing field so they can protect their margins against new competitors. JJ Hornblass I mean, that is a that's a difficult question to argue, right. I mean, you're on one hand arguing for technology, flexibility, but on the flip side, saying we still want a regulatory regime in place. Jaspreet Kalra Well, yeah, I mean, banking is one of the most heavily regulated sectors in across economies, like not even just the US for that matter. So I think a lot of what they're saying is they want to be able to protect their shareholders, and they want to be able to use new technology, but it's just so new right now. And so we need questions around that they don't want to look before they don't want to leave before they look. JJ Hornblass So Lorraine, that's the financial services side. But what about on the vendor side? What kind of stood out? What's kind of the argument that they're making? Visa V, you know, Ai, ml usage, or regulation. For financial services? Loraine Lawson Well, the one thing they agreed on is that it's slowing adoption, to not have clarification. They also applauded the FCC, for taking what they call a principle based approach, rather than a prescriptive approach where they you know, and that's where the technology agnostics have come into play, the vendors like that. But Google had sort of the most interesting and comprehensive response, they cited particular states, for example, state of Ohio has a safe harbor approach in which businesses that are here to recognize cybersecurity framework such as the NIS t standard, would be protected from tort liability for a data breach. Google applauded that, and so those East Asians look at that they also suggested with into real time payments is and talked about how India had set up their real time payment system, which was the Federal Reserve is looking at now a real time payment system. So they had a very, you know, Google esque approach, where they wanted those cc to do things like have a pilot project and have hackathons and sort of keep an open door policy so that as technology evolves, they're getting a response and feedback from the industry in a timely manner, rather than doing this, you know, three, four years after the technology has been adopted. JJ Hornblass Is there is there a, is there a way in which did was there a sense where, you know, vendors and the financial institutions really deviated in their responses? I mean, other than this kind of level playing field dynamic, was there something else where they were there was a real Gulf. Jaspreet Kalra I mean, I think the Gulf really appeared when reading something from the vendors say like later, Google was reading something from a group like Consumer Reports. Now Consumer Reports focus as compared to played in Google was that just because you can collect data doesn't mean you should, doesn't mean you should collect as much as you can, which is where a lot of the data privacy debates are also happening, like how much can be collected before you throw up the red flags and say, That's enough. So Consumer Reports are sort of very conservative with their approach saying only what you need, whereas paid in Google, like we have so much the why not us. JJ Hornblass Right, right. Okay. Also this week, maybe we can touch on quickly, invest net acquired agree to acquire or announced that they acquired I should say, harvest savings and wealth management, which offers automated savings tools. And that deal was announced today. jaspreet. Why should we care about that deal? Jaspreet Kalra Well, a couple of reasons. Because first of all, automation is an overall trend seems to be doing the things be it savings tools, speed, account, opening tools, and understand sort of second level. This is a trend we've seen over the last few months as well. The US Bank partnered with person x recently to develop an AI powered savings tool. And then you have Bank of America is lifeplan tool as well, is Manx Lang to deliver the most amount of customer value. And not just be a place where customers log in and look at how much money they have, but actually also get advice. So this is a good transition from just a service to also a trusted one. I used to be where you have trusted advisors built by banks who are not really people, but just machines telling you, Hey, this is the right way to do certain things. And even sort of even looking at it a little bit more broader, I think what you're going to see is companies like Fs net, who already have a big network and a big data aggregation platform, they'd be able to leverage their connections to build a vital market for products like these. So you're going to see this sort of convergence happening. JJ Hornblass I mean, do you Is there a sense? I mean, I don't know like Lorraine, have you heard about additional acquisitions that are kind of like coming down in the in the market? Is there sense that there's maybe more consolidation coming and you know, maybe perhaps as a result of the pandemic, Loraine Lawson it's actually just reading or listening to a podcast between UI paths. Today, check evangelist and foresters, Dr. Bernard Schaefer, and he was talking about how he anticipates this year where there will be consolidation, particularly in the RPA space with pure play AI is trying to, you know, enter that space. And so he expects that the market with these sort of automation technologies will be in flux. Okay. JJ Hornblass All right. So I and for next week, what do we have planned? Jaspreet Kalra Behind event coming up? We have we do automation ignite, which is a very, you know, a hotbed for all that discussion. JJ Hornblass Yes, we are going to if anyone wants to reach us on April 13, or 14, we're going to be at the conference. And if you're interested in the event, bank automation, ignite calm is all the details. We are very much looking forward to that. And most of our cards will center on on the event sessions, I would imagine so thank you both just breathe and Lorraine. For for joining me. And thank you everyone for joining me for this edition of the buzz. We hope you found it valuable. Please rate the podcast on your podcast platform of choice and follow us on Twitter, and LinkedIn. Thank you for being with us. We'll see you next time.

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