As auto lenders increasingly turn to technology to better their businesses, the Federal Reserve is evaluating the regulatory role the agency will play with regard to artificial intelligence, Fed Gov. Lael Brainard said Tuesday during a fintech conference in Philadelphia.
“We are working across the Federal Reserve System to take a deliberate approach to understand the potential implications of AI for financial services, particularly as they relate to our responsibilities,” she said.
The Fed is encouraging institutions to embrace AI, but at the same time is urging regulation of the technology. Adapting operations with AI to examine massive amounts of data more accurately, mitigate risk, and underwrite loans holds promise for lenders and consumers, but also requires “guardrails,” Brainard said.
However, the Fed emphasized the importance of well-thought-out regulation so as not to drive away responsible innovation from supervised institutions. While no timeline was announced for establishing regulations around AI, the Fed’s goal is to keep lenders and banks away from “less regulated and more opaque spaces” in the financial system, Brainard said.
There are several existing regulations and some supervisory guidance that can be applied to AI, including the Fed’s guidance on model risk management and vendor risk management. Still, the question remains: How should the Fed approach regulation and supervision?
“For our part, we are still learning how AI tools can be used in the banking sector,” Brainard said, calling on banks, financial services, and other firms to collaborate with the Fed to determine how the agency should proceed.
“We welcome discussion about what use cases banks and other financial services firms are exploring with AI approaches and other innovations, and how our existing laws, regulations, guidance, and policy interests may intersect with these new approaches,” she said.
Click here to view Gov. Lael Brainard’s full speech, titled “What Are We Learning about Artificial Intelligence in Financial Services?”