50 NOVEMBER / DECEMBER 2023 The technologies of artificial intelligence are becoming an integral piece of the world in which we live. These technologies are being deployed across a plethora of fields ranging from simple devices such as cell phones to more complex technologies such as autonomous vehicles or the diagnosing of diseases. Artificial intelligence is even rearing its technological head into the field of banking. It is a constantly evolving technology that many industries are jumping into while others are slowly being pushed into it in their efforts to thrive. For banks, it’s critical to embrace the advancements of the future, but also to consider the security and regulatory requirements and overall risk to the organization and its customers. The Benefits of AI Artificial intelligence is used in various fields and applications ranging from online shopping, advertising and machine translation enabling cross-language communication, to improving the overall operations and cost efficiency of financial institutions. With its broad range of uses, AI can potentially aid financial institutions in reducing costs associated with products and services while enhancing the overall customer experience as it bridges the gap between customer convenience and relationship. AI can benefit your lending process by expanding credit access, assisting in financing decisions, decreasing underwriting times and costs, and enhancing both the borrower and lender experience. AI can help other departments in the bank with identity validation and real-time anti-fraud monitoring. AI Challenges Like any other enhancing technologies, AI comes with its own set of risks including system integration and a skills gap. For system integration, the data behind AI is just as critical as the technology itself. To be beneficial and effective, the data quality and quantity need to be accurate. This involves organizing data and preparArtificial Intelligence: Benefits & Challenges for Financial Institutions FINANCIAL MANAGEMENT ing for integration, so banks with a core processor will have to coordinate between their core system and their AI technologies. This can often be a complex and costly undertaking, especially for community banks. It can get even more complicated if your core processors and AI solutions vendor are competitors, often leading to increased fees and costs for integration. Even if you can work out all the kinks related to system integration, there is always the challenge of obtaining expertly trained staff who are knowledgeable in building and deploying AI solutions. With the rapid advancement and use of AI technologies, there is a shortage of skilled AI experts in the broader labor force. This is expected to improve, but for now banks are left competing with large tech companies such as Apple or IBM when recruiting AI talent. Smaller banks may struggle to meet compliance expectations when these technologies are still surrounded by regulatory uncertainty. Banks are expected to identify and manage all risk related to artificial intelligence and how it is used within the organization, including ensuring all data used within the various branches of AI align with regulatory compliance requirements. For example, if the machine learning branch of AI is used in decision-making for credit, the bank should understand – and be prepared to explain – what contributing factors the AI system used to reach its decision (i.e., What data was input to receive the outcome/decision). That means both the process and the raw data itself must meet regulatory requirements, which involves ensuring the AI system isn’t using information that may violate consumer or fair lending laws. Banks utilizing AI should have processes in place that allow for the identification of risk, both new and emerging, as well as controls for managing that risk. Because of the rapidly evolving technologies of AI, there is always the challenge of changes in risk level or even unidentified risk developing. You need to be prepared to rise to the occasion when it comes to meeting those regulatory and risk challenges, whether through an increased frequency in monitoring and reviewing estabJulia A. Gutierrez Director of Education Bankers Alliance Julia@ ComplianceAlliance. com Bankers Alliance is a Preferred Service Provider of the Indiana Bankers Association. BANKERS A Holding Company for Review Alliance and Compliance Alliance Owned by Indiana Bankers Associa on
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