New artificial intelligence (AI) tools such as ChatGPT may trigger a legislative and governance upgrade for the NZ financial services sector, according to senior regulator, Daniel Trinder.
In an article penned last week, the Financial Markets Authority (FMA) strategy and design executive director says the rise of ‘generative’ AI could have profound consequences for how the industry operates with significant opportunities and risks to weigh up.
While ‘gen AI’ could deliver better consumer outcomes via efficiency gains, personalised services and more effective fraud detection, Trinder says the flipside of the technology deserves closer scrutiny.
“There may be the need for some firms to reassess their approach to governance to ensure adequate oversight of AI tools,” he says.
“The incorrect adoption of Gen AI applications can lead to undesired consequences and reputational damage or may not contribute to the business value of the organisation. Appropriate governance of such applications mitigates the associated risks, holds the appropriate people responsible, and can increase longevity and security of applications.”
Furthermore, Trinder says NZ financial services businesses will need to bolster “operational resilience” as the industry adopts AI tech including greater oversight of outsourced providers, defending against cloud-based cyber-attacks and protecting data privacy.
He says the FMA was also looking to engage with businesses in the sector already using, or impacted by, AI and related tech.
“Overtime we will assess whether our regulatory framework needs strengthening to support better deployment of Gen AI,” Trinder says.
Global rule-makers are waking up to the AI threats with Europe the first to introduce a specific regime to rein-in excesses of the latest tech incursion.
The European Parliament approved the AI Act mid-March with aim of protecting “fundamental rights, democracy, the rule of law and environmental sustainability” from firms using the technology.
In a paper published late last year, consultancy firm McKinsey notes that most jurisdictions were working on AI regulations.
“The exact future of legal obligations is still unclear and may differ across geographies and depend on the specific role AI will play within the value chain. Still, there are some no-regret moves for organizations, which can be implemented today to get ahead of looming legal changes,” the McKinsey report says.
“… Failure to handle AI and gen AI prudently can lead to legal, reputational, organizational, and financial damages; however, organizations can prepare themselves by focusing on transparency, governance, technology and data management, and individual rights.”
To date, attempts to regulate AI across the world share some common themes but tend to vary in detailed wording and implementation style, the consultant group says.