Artificial intelligence plays an important role in the digitalization of many banks, but it could turn into a regulatory minefield in the coming years.
Preparations are underway in the European Union for regulations on the use of artificial intelligence (AI). While the process is still in limbo, the thrust of the planned rules provides clues as to what companies need to prepare for.
Swiss AI and the analytics consultancy «Unit8» published a white paper outlining the areas of concern arising from such regulation. Companies would do well to prepare for the new rules and already implement them as a preventive measure, it recommends, even though Switzerland is not part of the EU.
High-Risk Applications
AI regulation is likely to have a significant impact on banks and insurance companies. Processes, where AI has been used, include applications for credit scoring or searching for suspicious transactions in the efforts to combat money laundering. Such areas are likely to be classified as high-risk applications by the EU and therefore heavily regulated.
Although the planned AI regulation will formally only apply in the EU, it has broader implications. Therefore, any foreign company operating within the EU would also have to be compliant, regardless of whether it is a software company or a bank, the report adds. Additionally, the EU regulation could set a precedent and become a model for other legislators.
Four Classes of Risk
Given their often complex cross-border legal structures, internationally active companies in the financial sector need to address these complex requirements at an early stage, the report says.
The regulation divides AI systems into four risk classes, ranging from unacceptable, high, low to minimal. Depending on the class, this imposes different requirements in terms of legal compliance, technical documentation, transparency, cybersecurity, and protection against AI vulnerabilities, it adds.
Heavy Fines
Failure to comply with EU regulations, even unknowingly, could have serious consequences for companies, the report said. In the process, fines could reach up to 6 percent of a company’s global revenue.
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