Increased Collaboration Needed to Manage AI Risks, Says Treasury

The financial services sector must improve industry collaboration to counter AI-related risks, according to the US Department of Treasury.

In a new report about managing AI risks, the Treasury said the safe adoption of AI technologies requires cross-enterprise collaboration among model, technology, legal, and compliance teams.

The report responds to President Joe Biden’s executive order on the ‘Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence’, which was issued in October 2023.

In particular, the report found that collaboration in the fraud-protection space is less coordinated than for cyber protection, which could reduce capabilities to effectively manage risks.

Even though there is limited sharing of fraud information among financial institutions, the report acknowledged that there have been certain efforts made in the banking sector.

As a result, the regulator has advocated for the creation of a clearinghouse for fraud data that enables rapid sharing of data and can support institutions of all sizes.

This would be particularly beneficial for smaller institutions as the absence of fraud-related data sharing affects smaller firms more significantly than larger firms, according to the Treasury.

This is because larger firms have a wider base of historical fraudulent activity data that can be used to develop effective fraud-detection AI models due to their broader set of client relationships.

In response to the report, Chris Feeney, executive vice president of the Banking Policy Institute, said: “Today’s report acknowledges AI’s remarkable potential, the importance of ongoing public-private partnerships and the comprehensive regulatory regime already applied to banks.”

The report also found that many financial institutions have incorporated AI-related risks into their existing risk management frameworks.

However, these frameworks may not be adequate to cover the risks of emerging AI technologies, such as Generative AI, which is why financial institutions appear to be moving slowly in adopting expansive use of AI.