AI Is Transforming How We Bank—and Regulators Need Help to Keep Up

Crypto may be hogging headlines, but it’s far from the only technological innovation causing problems for financial regulators. In particular, advances in a type of artificial intelligence known as machine learning are changing:

• how banks allocate credit;
• how banks manage their own risks internally;
• how financial advisers construct portfolios;
• how fraud and suspicious transactions are detected;
• and how certain back-office operations like customer service are performed.

And that’s just the beginning.

Consumer protection regulators, for example, are concerned that the use of machine-learning algorithms may already be violating fair lending laws. Although we might hope that automating decisions about who gets credit and on what terms would eliminate discrimination, the reality is that if the data used to train the algorithm reflect human biases, the algorithm will perpetuate those biases.