The Financial Stability Institute of the Bank for International Settlements has published a policy implementation insights paper on developments and challenges relating to regulating AI in the financial services sector. The paper explores the potential transformative impact of AI on the financial sector, focusing on operational efficiency, risk management and customer experience in banking and insurance. Among other findings, the paper concludes that while AI exacerbates existing risks such as model risk and data privacy, it does not introduce fundamentally new risks apart from generative AI, which may give rise to hallucination and anthropomorphism risks. Most financial authorities have not issued AI regulations specific to financial institutions as existing frameworks already address most of these risks, but some areas require further regulatory attention, including governance, expertise and skills, model risk management, data governance, non-traditional players in the financial sector, new business models and third-party AI service providers. The paper also notes that the presence of various AI definitions across jurisdictions needs to be addressed by international collaboration, as the lack of a globally accepted definition of AI prevents a better understanding of AI-use cases, and the identification of areas of heightened risk.
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