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USA: Treasury requests comments on uses, opportunities, and risks of AI in finance

On June 6, 2024, the U.S. Department of the Treasury launched a request for information (RFI) on the Uses, Opportunities, and Risks of Artificial Intelligence (AI) in the Financial Services Sector.

In particular, the Treasury highlighted that the RFI comes in response to the Executive Order on Safe, Secure, and Trustworthy Use of Artificial Intelligence. The RFI also seeks to identify and mitigate cybersecurity fraud, in alignment with the Office of Management and Budget's (OMB) Memorandum on Advancing Governance, Innovation, and Risk Management for Agency Use of Artificial Intelligence.

In seeking comments on AI, the Treasury provided that it understands AI to be 'a machine-based system that can, for a given set of human-defined objectives, make predictions, recommendations, or decisions influencing real or virtual environments. Artificial intelligence systems use machine and human-based inputs to perceive real and virtual environments; abstract such perceptions into models through analysis in an automated manner; and use model inference to formulate options for information or action.'

The Treasury outlined that the RFI seeks information on the uses of AI by financial institutions:

  • to assist in the provision of products and services;
  • for risk management, including credit risk, market risk, operational risk, and cyber risk;
  • to identify investment opportunities in capital markets;
  • for internal operations such as payroll, HR, training, and performance management;
  • for customer service, including complaint handling and investor relations;
  • to manage regulatory requirements, including reporting or disclosure requirements; and
  • for marketing.

What are the risks of AI in financial services?

Notably, the Treasury detailed that while AI-related risks are currently managed through existing risk management frameworks, including regulations related to consumer protection and anti-money laundering and combating the financing of terrorism (AML/CFT), the Treasury found in its AI Cybersecurity Report that existing risk management frameworks may not be adequate to address emerging technologies.

The Treasury noted particular challenges surrounding AI-assisted or AI-generated decisions, raising transparency concerns about negatively impacted entities. Risks further stem from the potential for AI models and tools to exacerbate certain risks.

In addition, the Treasury raised the potential for AI to present new or increased data privacy risks, with entities required to comply with data privacy laws requiring the anonymization or de-identification of data before its sale or use before being used to train models. Similar concerns were voiced regarding the use of consumer data for profiling of consumer spending habits.

The reliance on third parties was also considered a risk, with the Treasury stipulating that the principles of due diligence, contract management, and monitoring continue to apply to financial institutions' use of AI developed by third-party vendors. On third-party risk specifically, the Treasury cited the adoption of the Model Bulletin on the Use of Artificial Intelligence Systems by Insurers by the National Association of Insurance Commissioners (NAIC) in efforts to mitigate the risks of AI developed by third parties.

You can read the press release here and the RFI here.