Federal Reserve Board ("FRB") Governor Lael Brainard urged firms to be mindful of risks associated with artificial intelligence ("AI") innovation and advised regulators to remain diligent in the quest to understand and regulate the use of AI by supervised firms.
In remarks at the FinTech and New Financial Landscape Conference, Ms. Brainard underscored the "pace" and "ubiquity" of AI innovation. She emphasized the benefits and potential risks to bank safety and consumer protection that new AI applications pose. Ms. Brainard said that regulation and supervision designed to focus on risks should not hinder innovation that may benefit consumers and small businesses. Ms. Brainard said that supervisory guidance to firms must be read in the context of the "relative risks," and that the "level of scrutiny" directed at each AI approach should be proportional to the potential risks posed by the approach, tool, model or process utilized.
Separately, Ms. Brainard highlighted several consumer areas in which AI may be useful in increasing efficiency and mitigating risks. She noted that AI tools could be used, for example, to make internet fraud and phishing "highly personalized," but added that AI also could be employed as part of the solution to fraud prevention and cybersecurity. Furthermore, Ms. Brainard cited consumer lending as an area where AI could help creditors more accurately model and price risks. However, she explained, while AI may present consumer benefits, it is not exempt from fair lending and other consumer protection risks.
Commentary / Steven Lofchie
Federal Reserve Board Governor Lael Brainard is sending a very explicit warning to lenders that make algorithm-based credit decisions that they must review the credit approvals and rejections produced by these systems to determine whether there is any negative impact on a disadvantaged group.
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