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13 April 2021
On 29 March 2021 various federal agencies(1) issued a request for information (RFI) from financial institutions, trade associations, consumer groups and other stakeholders on the financial industry's use of AI. The RFI seeks insight into:
In recent years regulators have highlighted financial institutions' and technology firms' growing use of AI and machine learning. However, the RFI is the federal agencies' most coordinated effort to understand AI's potential benefits and risks to date. It follows Federal Reserve Board Governor Lael Brainard's January 2021 speech, which previewed the potential for additional "supervisory clarity" in this area.
The RFI acknowledges AI's importance to the industry and its customers, including in:
The RFI also notes AI's potential safety and soundness risks, including:
Consumer risks are also identified – for example:
Further, the RFI discusses the importance of 'explainability', which refers to "how an AI approach uses inputs to produce outputs". Some AI approaches exhibit a lack of explainability for their overall functioning or how they arrive at individual outcomes, which can result in challenges in legal compliance, audits and other contexts.
The RFI seeks comments on:
Fair lending appears poised to be the federal agencies' central supervisory concern in their evaluation of AI design and usage. The RFI poses more questions concerning fair lending than any other area. In particular, the federal agencies seek input on the following questions:
The RFI reflects the federal agencies' increasing interest in AI, particularly regarding the risks that it poses to consumers and the safety and soundness of financial institutions.
For further information on this topic please contact Mark Chorazak, Reena Agrawal Sahni, Timothy Byrne or Le-el Sinai at Shearman & Sterling LLP by telephone (+1 212 848 4000) or email (email@example.com, firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Shearman & Sterling LLP website can be accessed at www.shearman.com.
Caitlin Hutchinson Maddox, associate, assisted in the preparation of this article.
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