Artificial intelligence (AI) will separate winning banks from losers, say 77% of banking executives surveyed during the Covid-19 pandemic.
They believe Covid-19 will intensify the use of AI, making effective governance more urgent, according to an Economist Intelligence Unit (EIU) report that also identifies data bias, “black box” risk and lack of human oversight as key concerns for banks.
The EIU report, “Overseeing AI: Governing artificial intelligence in banking”, consolidates findings from 25 regulatory reports to provide deep insights and guidance on the use of AI in banking. It is is based on a review of global regulatory guidance on AI risks and governance in banking carried out by the EIU on behalf of Temenos.
AI is expected to retain its importance after the pandemic as banks look to new technologies to help them adapt to changing customer needs and compete with new market entrants. The EIU report reveals that ensuring ethical, fair and well-documented AI-based decisions will be vital for banks deploying AI technology.
The report highlights key governance challenges and distils regulatory guidance for banks using AI, including:
* Ethics and fairness: banks must develop AI models that are “ethical by design”. AI use cases and decisions should be monitored and reviewed and data sources regularly evaluated to ensure that data remains representative.
* Explainability and traceability: steps taken to develop AI models must be documented in order to fully explain AI-based decisions to the individuals they impact.
* Data quality: bank-wide data governance standards must be established and applied to ensure data accuracy and integrity and avoid bias.
* Skills: banks must ensure the right level of AI expertise across the business in order to build and maintain AI models, as well as oversee these models.
Prema Varadhan, chief product architect and head of AI at Temenos, comments: “AI is changing the face of the banking industry. It gives banks the ability to process more data in real time, and learn from customer behaviors, helping them to bring operating costs down and hyper-personalise their services.
“Banks are using AI to transform their customer experiences and back-office operations so ensuring that the technology is deployed ethically is more important than ever.”
The EIU review cites data bias that leads to discrimination against individuals or groups of people as among the most prominent risks for banks using AI.
Prag Sharma, senior vice-president of Citi Innovation Labs, says: “Bias can creep into AI models in any industry, but banks are better positioned than most types of organisations to combat it. Maximising algorithms’ explainability helps to reduce bias.”
Pete Swabey, editorial director: EMEA thought leadership at The Economist Intelligence Unit, adds: “AI is seen as a key competitive differentiator in the sector. Our new study, drawing on the guidance given by regulators around the world, highlights the key governance challenges banks must address if they are to capitalise on the AI opportunity safely and ethically.”