The questions directors should be asking about AI

This article was originally published on bankdirector.com.

While global banks may be moving quickly to implement artificial intelligence and related data throughout their operations, regional and community banks may be more uncertain about how best to proceed and navigate AI-related risks.

Considering this wide variation of AI usage across the financial services industry, boards need to ensure they are asking the right questions of their bank’s C-suite team as the organization develops a governance framework for AI.

The framework

Implementing new AI tools will often require banks to integrate teams of people who have minimal or no financial services background—engineers, coders and data scientists, for instance—with bankers and other staff. Typically, this involves a learning curve in helping non-bank team members understand how to adhere to industry-specific regulations and compliance considerations in developing and honing AI tools. Boards and C-suites need to ensure that integration and collaboration go smoothly, which can increase efficiency and profitability.

An AI governance framework is a crucial foundational step to be able to embrace AI fully and responsibly and keep all teams on the same page about processes, policies and risks. While AI as a subject matter may be new for some banks, facets of the accompanying framework will be similar to other already implemented governance frameworks. Some of the key focus areas include:

• Regulatory compliance. Understanding how best to adapt to existing and forthcoming regulation that relates to AI—whether that regulation comes from federal agencies or other governing bodies—while also ensuring the bank maintains ongoing compliance with all relevant regulations as AI is integrated into various processes to enhance efficiency and streamline operations.
• Risk management. Ensuring there are proper procedures in place to safeguard data from breaches and other threats and address a range of other cybersecurity, privacy, data, model and operational risks.
• Ongoing monitoring. Continuous analysis of the bank’s AI technology and the results it produces leads to optimal performance as emerging risks, inaccuracies and outliers will be identified and remediated in a timely fashion.

Risk and bias considerations are typically where AI governance frameworks are unique, and these issues can spur anxiety from regional and community banks. Often, worries crop up about whether technology can be trusted with navigating such issues. Organizations would do well to remember that even their strongest employee isn’t correct 100% of the time, and it might be useful to approach AI the same way. For many banks, that will require a perspective shift. AI is a powerful tool whose outputs should still be validated by people, and when implemented correctly can equip all employees with more information.

A mindset for constant change

AI continues to evolve rapidly, which brings plenty of excitement and new opportunities. But banks need to take a measured approach, especially because of how significantly that rapid evolution contrasts with the traditionally glacial pace of regulatory change in the finance world. This means multiple teams at the institution—from those developing the AI governance framework down to those implementing the technologies—will need to keep up with those constant changes and adapt accordingly.

A major part of adapting will be continuous reassessment of the governance framework. Often, banks will analyze and update such frameworks on an annual basis, but that likely won’t be sufficient when it comes to AI. A more frequent analysis might be necessary at first. Whatever cadence an organization adopts, whether that be semiannual or quarterly, ongoing monitoring will be critical to adapt to emerging challenges and ensure success.

Questions for directors to ask

Boards will play an important role in how their banks use AI. As such, board members should probe governance frameworks to ensure they address policies, practices and procedures related to data accuracy, compliance and operational risks.

Some of the key questions board members may want to ask their executive teams include:

• Which members of the C-suite are taking responsibility for which parts of the AI governance framework and how the bank is using AI technologies?
• How is the organization ensuring accuracy of the information in the bank’s centralized data storage and other repositories of information?
• What controls does the organization need to implement to mitigate AI-related risks that may arise?
• How are teams set up to continually reassess the AI governance framework as regulations and technologies evolve rapidly?

These questions and intentional planning to develop a clear AI governance framework can help banks tackle issues that arise in this fast-evolving space.