Bridging the gap: Global alignment around artificial intelligence oversight is growing
The introduction of ChatGPT and the advent of GenAI heightened global attention on AI regulations. Now, several countries are proposing AI frameworks to promote fair competitive practices.
October 2024
Matthew Sample
Emerging Technologies Governance Architect
Recently, regulators from the United States, United Kingdom and the European Union issued a joint statement, outlining concerns about market concentration and anti-competitive practices in generative artificial intelligence (GenAI) – the technology behind popular chatbots like ChatGPT.
“Given the speed and dynamism of AI developments, and learning from our experience with digital markets, we are committed to using our available powers to address any such risks before they become entrenched or irreversible harms,” the regulators noted, emphasizing the need for swift action in a rapidly evolving landscape.
Although the US, UK and EU authorities are unlikely to create unified regulations in the near term, their alignment suggests a coordinated approach to oversight. This could lead to closer scrutiny of AI-related mergers, partnerships and business practices in the coming months.
Balancing innovation and regulation
The advent of GenAI – particularly the introduction of ChatGPT in late 2022 – spurred renewed and pressing focus on AI regulations globally, as countries strive to balance innovation against safeguarding technology with wide-ranging applications that are advancing faster than many anticipated.
As companies across several industries, including financial services, look at the potential applications of GenAI and Large Language Models for areas like unstructured data analysis and written content generation, its growing prevalence has attracted regulators’ attention.
AI regulation is beginning to take shape. Several countries have proposed AI frameworks, including a comprehensive legislation in the EU – the first of its kind proposed in a major economy.
Given the breadth and depth of GenAI’s potential impact, lawmakers and regulators governing financial institutions’ use of the technology will need to consider a broad range of regulatory implications, including:
Strategies for mitigating risks
With AI, it is easier to deny responsibility for bad outcomes than with any other technology in recent memory. Therefore, implications for trust are significant. In the banking and finance arena, developing what US Acting Comptroller of the Currency, Michael J. Hsu, has called a “shared responsibility model” for fraud, scams and ransomware attacks may provide a useful starting point for mitigating risks.
If the past is any guide, the micro- and macro-prudential risks from AI will emanate from the overly rapid adoption of the technology without sufficiently developed controls. What starts off as responsible innovation can quickly snowball into a hyper-competitive race to grow revenues and market share, with a “we’ll deal with it later” attitude towards risk management and controls. In time, risks grow undetected or unaddressed until there is an eventual reckoning. We saw this with derivatives and financial engineering leading up to the 2008 financial crisis and with cryptocurrencies leading up to the 2022 crypto winter.
AI appears to be following a similar evolutionary path – initially used to assist human decision making, then as a co-pilot to enhance human actions, and finally as an independent agent executing decisions on behalf of humans. The risks and negative consequences of weak controls increase steeply as one moves from AI as input, to AI as co-pilot, and to AI as agent.
For banks interested in adopting AI, it is important to consider the following factors:
The US, UK and EU’s joint statement is an early attempt at setting pan-regional standards for the regulation of AI. It suggests regulatory approaches be bucketed under the basic principles of “Fair Dealing,” “Interoperability” and “Choice,” aimed at curbing monopolistic practices at the AI provider and consumer levels.
For more information on AI-focused regulations in 2024 globally, read the latest edition of our Digital Digest.