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In her remarks, Michelle W. Bowman, Chair of the FSB Standing Committee on Supervisory and Regulatory Cooperation (SRC), discusses the FSB’s Consultation Report on the Sound Practices for Responsible Adoption of Artificial Intelligence (AI).
Michelle W. Bowman delivers opening remarks at a Financial Stability Board (FSB) Virtual Outreach Event, formally introducing the FSB's consultation report on 'Sound Practices for Responsible Adoption of Artificial Intelligence'. She underscores the significance of this report as a key deliverable for the US G20 presidency and expresses the collective desire of both Federal Reserve staff and the FSB Secretariat to actively consider and integrate public feedback to enhance and finalize the report later in the year. This initial address sets the collaborative tone for addressing the intersection of AI and financial stability.
Bowman extends her sincere appreciation to those instrumental in the report's development. She specifically acknowledges Hern Shin Ho from the Monetary Authority of Singapore for adeptly leading the FSB work stream, which successfully produced this comprehensive report within a challenging timeframe. Gratitude is also conveyed to the diligent staff of the FSB Secretariat for their invaluable support, as well as to US colleagues at the Treasury and the SEC for their collaborative contributions, highlighting the broad inter-agency and international cooperation that underpinned this important initiative.
In her capacity as Chair of the FSB’s Standing Committee on Supervisory and Regulatory Cooperation, Bowman outlines her strategic decision to initiate work on sound practices for AI adoption by financial institutions. She emphasizes the rapid evolution of AI since this work began, noting the expanded use of AI across the financial sector. The report aims to address both the significant potential benefits and the inherent risks and challenges that accompany the increasing integration of AI. A key objective is to promote responsible innovation by identifying and detailing effective risk management strategies already successfully implemented by financial institutions, ensuring the broader financial system can leverage AI safely.
Drawing from nearly a decade of monitoring AI usage within the banking sector, Bowman shares the Federal Reserve’s insights. She notes a significant increase in AI adoption by banks of all sizes, encompassing a wide array of applications. The Federal Reserve has consistently focused on supporting institutions in their efforts to innovate responsibly through AI, and its extensive domestic experience and observations have directly informed and shaped the international sound practices presented in the FSB report. This integration of national supervisory experience into global guidance ensures the recommendations are practical and relevant.
A fundamental principle emphasized in the FSB report is that effective AI risk management hinges on a clear understanding of specific AI use cases. Bowman elaborates that the report includes a diverse set of examples, along with detailed case studies, to illustrate suitable governance structures and control mechanisms. She clarifies that these examples are not prescriptive but rather serve as guidance for financial institutions. Critically, institutions are urged to precisely define their AI applications and assess their materiality concerning business operations and legal/regulatory obligations. This assessment directly influences the appropriate level and intensity of governance and controls, advocating for a proportionate approach where lower-risk AI uses warrant a lighter supervisory and regulatory touch.
The principle of proportionality is a cornerstone of the FSB report, as highlighted by Bowman. This concept dictates that AI governance and control frameworks must be adaptable to the varying characteristics of financial institutions. What is deemed necessary and appropriate for large institutions engaging in complex AI applications will not be suitable for smaller entities with less sophisticated AI deployments. The report explicitly aims to provide clear and flexible guidance that accommodates all institutions, promoting responsible innovation across the entire spectrum of the financial system, rather than solely focusing on the largest players. Bowman actively solicits feedback on whether the report achieves the right balance in applying proportionality to AI adoption and use, ensuring the guidelines are both effective and equitable.
Concluding her remarks, Bowman positions the consultation report as an initial, yet crucial, step in establishing a robust framework for responsible AI use in the financial sector. She strongly encourages all stakeholders to actively participate in the public comment period, specifically inviting feedback on aspects where the sound practices might be overly prescriptive or where they might not adequately account for the diverse sizes, complexities, and risk profiles of different institutions. Conversely, she also seeks input on any unaddressed material risks or areas requiring additional clarity to help institutions manage AI-related risks more effectively. The overarching objective is to develop practices that robustly support responsible innovation throughout the financial system, while simultaneously ensuring sufficient safeguards are in place, particularly for higher-risk applications. The collected feedback will be vital in shaping the final report, which will be delivered to the US G-20 presidency, solidifying international cooperation in this evolving domain.