Artificial intelligence (AI) is poised to affect every aspect of the world economy and play a significant role in the global financial system, leading financial regulators around the world to take various steps to address the impact of AI on their areas of responsibility. The economic risks of AI to the financial systems include everything from the potential for consumer and institutional fraud to algorithmic discrimination and AI-enabled cybersecurity risks. The impacts of AI on consumers, banks, nonbank financial institutions, and the financial system’s stability are all concerns to be investigated and potentially addressed by regulators.
It is the goal of Perficient’s Financial Services consultants to help financial services executives, whether they lead banks, bank branches, bank holding companies, broker-dealers, financial advisors, insurance companies or investment management firms, the knowledge to know the status of AI regulation and the risk and regulatory trend of AI regulation not only in the US, but around the world where their firms are likely to have investment and trading operations.
FinCEN
In 2018, Treasury’s Financial Crimes Enforcement Network (FinCEN) and the federal banking agencies (FDIC, Federal reserve, OCC, and NCUA) issued a Joint Statement on Innovative Efforts to Combat Money Laundering and Terrorist Financing, that encouraged banks to use existing tools or adopt new technologies, including AI, to identify and report money laundering, terrorist financing, and other illicit financial activity.
Pursuant to requirements and authorities outlined in the Anti-Money Laundering Act of 2020 (the AML Act), FinCEN is also taking several steps to create the necessary regulatory and examination environment to support AML/CFT-related innovation that can enhance the effectiveness and efficiency of the Bank Secrecy Act (BSA). In particular, Section 6209 of the AML Act requires the Secretary of the Treasury to issue a rule specifying standards for testing technology and related technology internal processes designed to facilitate effective compliance with the BSA by financial institutions, and these standards may include an emphasis on innovative approaches to compliance, such as the use of machine learning.
In April 2021 a Statement and separate Request for Information on Model Risk Management was issued by FinCEN and the FDIC, Federal Reserve, NCUA, and OCC. As part of the regulatory process, FinCEN may consider how financial institutions are currently using innovative approaches to compliance such as machine learning and AI, and the potential benefits and risks of specifying standards for those technologies.
In February 2023, FinCEN hosted a FinCEN Exchange that brought together law enforcement, financial institutions, and other private sector and government entities to discuss how AI is used for monitoring and detecting illicit financial activity. FinCEN also regularly engages financial institutions on the topic through the BSA Advisory Group Subcommittee on Innovation and Technology, and BSAAG Subcommittee on Information Security and Confidentiality.
