Featured Product

    James Proudman of BoE on Governance of Artificial Intelligence

    June 04, 2019

    While speaking at the FCA Conference on Governance in Banking in London, James Proudman of BoE highlighted that technology, such as artificial intelligence and machine learning, is shaping a new economy powered by big data and advanced analytics. He also provided an overview of the scale of introduction of artificial intelligence in UK financial services, based on the preliminary results of a BoE and FCA survey, the results of which are expected to be published in the third quarter of 2019. Finally, he outlined three principles for governance in the areas of artificial intelligence and machine learning.

    Mr. Proudman emphasized that a prudential regulator must understand how the application of artificial intelligence and machine learning within financial services is evolving and how the resulting risks can best be mitigated through banks’ internal governance and through systems and controls. Despite the plethora of anecdotal evidence on the adoption of artificial intelligence and machine learning, there is little structured evidence about UK financial services. To gather more evidence, BoE and FCA sent a survey in March to more than 200 firms, including the most significant banks, building societies, insurance companies, and financial market infrastructure firms in the UK. The full results of the survey will be published by the BoE and FCA in the third quarter of 2019. However, responses were returned in late April, so some early indicative results are emerging. 

    Overall, the mood around implementation of artificial intelligence among firms regulated by BoE is strategic but cautious, said Mr. Proudman. Four-fifth of the firms surveyed returned a response; many reported that they are in the process of building the infrastructure necessary for larger scale deployment of artificial intelligence and 80% reported using machine learning applications in some form. The median firm reported deploying six distinct such applications and expected three further applications to go live over the next year, with ten more over the following three years. Barriers to  deployment of artificial intelligence seem to be mostly internal to firms, rather than stemming from regulation. Some of the main reasons include legacy systems and unsuitable IT infrastructure; lack of access to sufficient data; and challenges in integrating machine learning into existing business processes.

    He concluded his speech by describing three principles for governance of artificial intelligence and machine learning, based on his observations. First, the observation that the introduction of artificial intelligence and machine learning poses significant challenges around the proper use of data, suggests that boards should attach priority to the governance of data—what data should be used; how should it be modeled and tested; and whether the outcomes derived from the data are correct. Second, the observation that the introduction of artificial intelligence and machine learning does not eliminate the role of human incentives in delivering good or bad outcomes, but transforms them, implies that boards should continue to focus on the oversight of human incentives and accountabilities. Third, the acceleration in the rate of introduction of artificial intelligence and machine learning will create increased execution risks during the transition that need to be overseen. Boards should reflect on the range of skill sets and controls that are required to mitigate these risks both at senior level and throughout the organization.

     

    Related Link: Speech

     

    Keywords: Europe, UK, Banking, Insurance, FMI, Fintech, Artificial Intelligence, Machine Learning, Governance, Big Data, FCA, BoE

    Related Articles
    News

    EBA Analyzes Impact of Unwind Mechanism of Liquidity Coverage Ratio

    EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.

    November 19, 2020 WebPage Regulatory News
    News

    ECB Outlines Views on Possible Changes to AnaCredit Rule and TLTROs

    In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.

    November 19, 2020 WebPage Regulatory News
    News

    IASB Begins First Phase of Post-Implementation Review of IFRS 9

    IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.

    November 18, 2020 WebPage Regulatory News
    News

    FSB Report Examines Progress in Resolvability of Systemic Institutions

    FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.

    November 18, 2020 WebPage Regulatory News
    News

    EBA Benchmarks National Insolvency Frameworks Across EU

    EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.

    November 18, 2020 WebPage Regulatory News
    News

    FSB Reports Assess Impact of Pandemic on Financial Stability

    FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.

    November 17, 2020 WebPage Regulatory News
    News

    RBNZ Consults on Implementation of Capital Review Changes

    RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.

    November 17, 2020 WebPage Regulatory News
    News

    IASB Announces Andreas Barckow as the New Chair from July 2021

    The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.

    November 17, 2020 WebPage Regulatory News
    News

    HKMA Consults on Capital Rules for Bank Equity Investments in Funds

    HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.

    November 17, 2020 WebPage Regulatory News
    News

    ESRB Supports Extension of Macro-Prudential Measure by Swedish FSA

    ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).

    November 17, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6153