The case for placing AI at the heart of digitally robust financial regulation

Jo Ann Barefoot May 24 2022 Brookings Institution  

Data is the new oil.” Originally coined in 2006 by the British mathematician Clive Humby, this phrase is arguably more apt today than it was then, as smartphones rival automobiles for relevance and the technology giants know more about us than we would like to admit. Just as it does for the financial services industry, the hyper-digitization of the economy presents both opportunity and potential peril for financial regulators.  

On the upside, reams of information are newly within their reach, filled with signals about financial system risks that regulators spend their days trying to understand. The explosion of data sheds light on global money movement, economic trends, customer onboarding decisions, quality of loan underwriting, noncompliance with regulations, financial institutions’ efforts to reach the underserved, and much more. Importantly, it also contains the answers to regulators’ questions about the risks of new technology itself.  

AI and data management are inextricably intertwined, so that acceptable AI usage will not emerge unless regulators and others solve the many related challenges regarding data use. As with any kind of decision making, AI-based choices are only as good as the information on which they rely. 


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