The Role of Risk Management in Supporting the Adoption of Artificial Intelligence in Financial Services
By Isaac Alfon (crescendo-erm.com)
Artificial Intelligence (AI) is changing financial services. This also represents a challenge to business governance that extends to how risk management is applied.
However, informal evidence suggests that, for all the hype, FinTech and AI have not yet become mainstream in insurance or in financial services more generally.
There are two additional and relevant observations. Firstly, the largest business transformation arising from FinTech and AI is the adoption of these technologies by incumbents.
Secondly, someone who works for a multinational insurer made the observation during an InsurTech event in London that as a regulated entity, the insurer has responsibilities and obligations towards their customers and must follow due process before they roll out new technologies. There was a hint of an apology in this observation to the nimble start-ups in the audience.
Putting all these thoughts together led me to see the main challenge to the adoption of FinTech by incumbents as governance, including how risk management is applied in practice.
If you regard, the aim of risk management as to ‘protect and enable’, then risk management can be part of the solution. Risk management can be a business enabler and lead to the creation of the necessary infrastructure to ensure that AI tools achieve their transformational potential. This includes articulating a vision of how a control framework should be leveraged, considering the impact of FinTech and AI on risk management frameworks, focusing on explainable AI, and articulating the implications for the target operating model.
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