The Basel Committee on Banking Supervision (Committee) issued a newsletter discussing its internal discussions regarding artificial intelligence and machine learning.  The newsletter made the following observations:

• Banks are increasingly exploring opportunities for using artificial intelligence (AI), including machine learning (ML). 
• Banks' use of AI/ML presents significant opportunities but can also heighten certain risks and challenges. 
• The Committee intends to continue exploring banks' use of AI/ML, especially in the areas of explainability, governance, and resilience and financial stability.

The paper notes that banks are increasingly exploring opportunities for using AI/ML. AI/ML technology is expected to increase banks' operational efficiency and also facilitate improvements in risk management. While significant opportunities are emerging from the increasing use of AI/ML in many areas of banking, there are also risks and challenges associated with these techniques.

It notes that given the challenges associated with AI/ML, both supervisors and banks are assessing existing risk management and governance practices to determine whether roles and responsibilities for identifying and managing risks remain sufficient. As with other complex operations and technologies, it is important that banks have appropriately skilled staff, which can include model developers, model validators, model users and independent auditors. 

The Committee is working to develop further insights on this topic with a focus on the following areas:  

• First, the extent and degree to which the outcomes of models can be understood and explained.
• Second, AI/ML model governance structures, including responsibilities and accountability for AI/ML-driven decisions.
• Third, the potential implications of broader usage of AI/ML models for the resilience of individual banks and more broadly, for financial stability. 

A copy of the newsletter can be viewed here.