Featured Product

    FSB on Financial Stability Implications of AI and Machine Learning

    November 01, 2017

    FSB published a report examining the financial stability implications of the growing use of artificial intelligence (AI) and machine learning in financial services. The report draws on discussions with firms; academic research; public and private sector reports; and ongoing work at FSB member institutions.

    The first section of the report defines the key concepts of the report and offers context for the development of AI and machine learning for financial applications. The section describes supply and demand factors driving the adoption of these techniques in financial services. The third section describes four sets of use cases: customer-focused applications; operations-focused uses; trading and portfolio management; and regulatory compliance and supervision. The fourth section contains a micro-analysis of the effects of adoption on financial markets, institutions, and consumers. The fifth section offers a macro-analysis of effects on the financial system, with the final section concluding with an assessment of implications for financial stability. The FSB analysis reveals that the following potential benefits and risks for financial stability should be monitored, as the technology is adopted in the coming years and as more data becomes available:

    • The more efficient processing of information—for example in credit decisions, financial markets, insurance contracts and customer interactions—may contribute to a more efficient financial system. The applications of AI and machine learning by regulators and supervisors can help improve regulatory compliance and increase supervisory effectiveness.
    • Applications of AI and machine learning could result in new and unexpected forms of interconnectedness between financial markets and institutions, based on the use of previously unrelated data sources by various institutions.
    • Network effects and scalability of new technologies may in the future give rise to third-party dependencies. This could in turn lead to the emergence of new systemically important players that could fall outside the regulatory perimeter.
    • The lack of interpretability or auditability of AI and machine learning methods could become a macro-level risk. Similarly, a widespread use of opaque models may result in unintended consequences.
    • As with any new product or service, it will be important to assess uses of AI and machine learning in view of their risks, including adherence to relevant protocols on data privacy, conduct risks, and cybersecurity. Adequate testing and “training” of tools with unbiased data and feedback mechanisms is important to ensure applications do what they are intended to do.

     

    Related Link: FSB Report (PDF)

    Keywords: International, Banking, Insurance, Securities, Fintech, Regtech, Financial Stability, FSB

    Related Articles
    News

    FSB Publishes List of Global Systemically Important Banks for 2019

    FSB published the 2019 list of global systemically important banks (G-SIBs), using the end-2018 data and an assessment methodology designed by BCBS.

    November 22, 2019 WebPage Regulatory News
    News

    EBA Publishes Roadmap on Risk Reduction Measures Package

    EBA published a set of roadmaps outlining the approach and timelines for delivering the mandates stemming from the Risk Reduction Measures Package adopted by the European Council and European Parliament on May 20, 2019.

    November 21, 2019 WebPage Regulatory News
    News

    EBA Consults on Initial Reporting Requirements for Market Risk

    EBA launched a consultation on the implementing technical standards on supervisory reporting requirements for market risk.

    November 21, 2019 WebPage Regulatory News
    News

    FED Proposes to Extend Initial Compliance Dates Under SCCL Rule

    FED published a proposal to extend, by 18 months, the initial compliance dates for foreign banks subject to the single-counterparty credit limit (SCCL) rule.

    November 20, 2019 WebPage Regulatory News
    News

    CBIRC to Strengthen Supervisory and Policy Support for SME Services

    CBIRC released a notification on strengthening supervision and guidance to enhance the quality and efficiency of financial services for "small and micro-enterprises" (SMEs).

    November 20, 2019 WebPage Regulatory News
    News

    FED Adopts Proposal to Implement Reporting Form for SCCL

    FED adopted a proposal to implement the Single-Counterparty Credit Limits (SCCL) reporting form FR 2590.

    November 20, 2019 WebPage Regulatory News
    News

    APRA Publishes Approach to Regulating and Supervising GCRA Risks

    APRA published an information paper that sets out a more intensive regulatory approach to transform governance, culture, remuneration, and accountability (GCRA) practices across the prudentially regulated financial sector.

    November 19, 2019 WebPage Regulatory News
    News

    US Agencies Update Rule on Derivative Contracts Exposure Calculation

    US Agencies (FDIC, FED, and OCC) announced a final rule updating the way certain banking organizations are required to measure counterparty credit risk for derivative contracts under their regulatory capital rules.

    November 19, 2019 WebPage Regulatory News
    News

    US Agencies Finalize Rule to Amend Treatment of HVCRE Exposures

    US Agencies (FDIC, FED, and OCC) finalized a rule to modify the treatment of high volatility commercial real estate (HVCRE) exposures, as required by the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act.

    November 19, 2019 WebPage Regulatory News
    News

    US Agencies Finalize Changes to Rule on Supplementary Leverage Ratio

    US Agencies (FDIC, FED, and OCC) finalized changes to the capital requirement for banking organizations predominantly engaged in custodial activities, as required by the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act.

    November 19, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 4177