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The financial industry is not an exception for AI to be leveraged for its capabilities. No other business sector focuses more on the development and implementation of AIs for speed, precision, and efficiency than the financial sector. Machine learning algorithms, software that self-improves as more and more data is fed, a trend that the financial industry can benefit immensely from.
Federal Reserve Board Governor Lael Brainard spoke in a recent speech at “Fintech and the New Financial Landscape” in Philadelphia about how technology is changing the financial landscape, and the lessons learned about artificial intelligence( AI) in financial services. Financial services companies devote more money, attention, and time to the development and use of AI approaches. This is due to several important factors, including the increased accessibility of the three key components of AI-algorithms, processing capacity, and big data. However, Governor Brainard pointed out the main reasons for this increased interest in using AI approaches. A few of these factors are competitive, such as the views of financial services companies that AI approaches can offer cost efficiencies without compromising output and performance, and that the higher degree of automation provided by AI approaches can increase processing accuracy.
Leveraging AI in financial services is quite early, but the attention and regulatory scrutiny are increased. The regulators are aware of the application of AI to the financial services industry and pay attention to it. Governor Brainard emphasizes the efforts of the Fintech Working Group, which works throughout the Federal Reserve System to develop a coherent and much more nuanced understanding of the potential implications of AI for financial services, particularly in relation to regulatory and supervisory responsibilities.
Initially, regulators look at existing laws, regulations, guidance and supervisory approaches as they begin to assess the necessary regulatory approach for AI benefits. However, more importantly, Governor Brainard’s speech indicates that the regulators have concluded that certain laws, regulations, and guidelines appear to be particularly relevant and suitable for the use of AI instruments. For firms engaged in consumer finance, it is important to be aware of fair lending and other risks to consumer protection and to ensure that fair lending and other consumer protection laws are complied with. While AI can provide advantages to consumers, such as increasing access to credit by using non-traditional criteria in the credit subscription process and reaching “unbanked” and “underbanked” communities, its use is not risk-free.
As financial organizations today continue to function with AI applications, the beneficiaries will be both customers and providers. It creates a strong bond between them by making more customer engagements with an increased level of satisfaction. This scenario can assure banks with consistent and continuous growth.