Member Article

On 21 August 2020, the HKIMR, the research arm of the Hong Kong Academy of Finance, released its second report, entitled “Artificial Intelligence in Banking: The Changing Landscape in Compliance and Supervision”.

The report is intended as a starting point for understanding the broad implications of Artificial Intelligence (“AI”) adoption in the banking industry, as well as in relation to compliance and supervision. Key takeaways include:

1. About 80% of the banks which participated in a survey conducted by the HKMA in August 2019 (a) view AI adoption as a way of reducing operating costs, improving efficiency and strengthening risk management, and (b) plan to increase investment in the technology over the next five years.
   
   
2. AI poses new risks and challenges to banks: the lack of quality data and data protection; shortage of talent; technical aspects such as increased complexity of, and difficulty in explaining and validating, AI models; the evolving regulatory environment; and new cyber threats.
   
   
3. There are three key aspects of AI model risks which need to be monitored effectively for there to be a robust governance framework: data inputs, model design and validation.
   
   
4. The HKMA’s policy on AI adoption is to apply the twin principles of technology neutrality and risk-based supervision, and three sets of supervisory guidelines or initiatives have been implemented to govern the prudent use of data analytics and AI models, and to strengthen the resilience of cybersecurity systems.
   
   
5. Banks and regulators are exploring the use of AI to streamline compliance procedures and integrate the technology into the supervisory process.

The report is accessible here: link.