 "M Rajeshwar Rao, Deputy governor, RBI")
Reserve Bank of India's Deputy Governor M Rajeshwar Rao flagged concerns over data bias, governance, and transparency from the increased use of Artificial Intelligence (AI) deployed by financial institutions.
Speaking at the 106th Annual Conference of the Indian Economic Association in Delhi on December 22, Rajeshwar Rao said, “While some of these concerns are design specific risks such as biases and robustness issues, others are more traditional and user specific such as data privacy, cybersecurity, consumer protection, and preserving financial stability.” RBI uploaded a copy of the speech on its website on Monday.
He categorized these risks into three broad sets – data bias and robustness, governance, and transparency.
According to Rao, AI is only as good as the data on which it has been trained and therefore can inherit the biases and errors in the training data, whereas humans accumulate these from their lifetime of exposure and experience. Also, there are other risks and vulnerabilities to the AI like -- arbitrary code execution, data poisoning, data drift, unexpected behaviour, and biased predictions which financial institutions need to be careful about while deploying.
On the governance front, AI is likely to pose some novel challenges, particularly where the technology is used to facilitate autonomous decision-making and is expected to limit or potentially eliminate human judgement and oversight.
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Some of the data and model issues such as prompt injection, hallucinations, and toxic output can also have implications for governance frameworks, especially in financial institutions. This may necessitate that regulators and the management have a re-look at the frameworks for consumer protection, cybersecurity, and data privacy.
As a step to counter these mishaps, a human will have to be added into the loop in the form of governance structures that oversee the activities, along with regular audits and assessments of these applications based on laws and regulatory standards.
Further, the Deputy Governor highlighted the complex and opaque nature of the AI models which requires extra caution which will affect the transparency of the business. Financial institutions may find it difficult to explain an adverse or biased decision outcome from an AI model to customers or supervisors.
As a corrective measure to these risks, the Deputy Governor elucidated ten areas which can be considered by the institutions using AI in order to strike a balance between innovation and responsible use of technology. These are like ensuring fairness, transparency, accuracy, consistency, data privacy, accountability, explainability, robustness as well as monitoring and updating along with constant human oversight.
As the banking sector evolves with emerging technologies, Rao said that AI will play a key role and the existence of a supportive regulatory framework which aids in harnessing the benefits of the technology is needed.
“As the adoption of AI is increasing, global efforts to develop regulatory frameworks to help guide the use of AI applications are also increasing and greater cooperation in this process would be required. Our collective endeavour should be to embrace this evolution with mindfulness and a sense of responsibility, while committing to a future where technology serves as an enabler for society at large,” Rao concluded.
