The Bank of England commenced a consultation last year regarding the risks and benefits of Artificial Intelligence (AI) in financial services. The consultation closes on 10 February 2023.
Discussion Paper DP5/22 was published not only by the Bank but also in liaison with the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). The intent was to contribute to other discussions taking place internationally on this subject, and it is hoped that contributions to the consultation will assist regulators in their policy making in the future.
The paper is wide ranging, but sought to classify the risks under three areas as follows:
• Data-related risks – for example insufficient or biased datasets
• Model risks – for example conceptual defects in designing the model or errors in coding the model
• Governance risks – for example confusion or gaps created by undefined roles & responsibilities
Articles about the consultation have been published by Hogan Lovells and Morgan Lewis. The Discussion Paper itself can be found on the Bank of England’s website.
James Burgoyne of Brunel Professions said: “AI offers the potential for far more personalised financial products for consumers, but it also exposes firms to risk if their systems inadvertently introduce bias or amplify prudential risks. The insurance market will be viewing the consultation closely not only as market participants but also as professional indemnity insurers if an AI-driven product or service goes wrong.”
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