During a panel discussion hosted by the Australian Banking Association (ABA), three senior representatives from the Reserve bank of Australia (RBA), the Australian Prudential Regulation Authority (APRA), and the Australian Securities and Investments Commission (ASIC) agreed artificial intelligence (AI) was the biggest emerging challenge for the financial system.
RBA deputy governor Michele Bullock flagged the potential implications of AI on the central bank’s mandate.
She said the technology poses a threat to the central bank’s oversight of the payments system and could undermine its cyber security.
APRA chair John Lonsdale added legal and regulatory frameworks have not kept pace with the AI revolution.
“When I think about the financial system inquiry and where we were in 2014 to now, so much has changed,” he said.
“Technology is the one thing that we’ve got to be aware of [regarding] how that links to the safety.”
ASIC chair Joe Longo noted ASIC’s work examining the impact of AI since the technology “exploded onto the scene”.
He said the corporate regulator is studying how AI could “manifest” in new forms of misconduct and harm for investors, consumers, and regulators, making reference to the AI “black box” — the uncontrolled and unknown elements behind the functioning of AI.
“We’ve all heard of the black box, and underlying all of this are algorithms for someone else to explain how they work, how the variables interrelate to one another,” he said.
“So that’s a huge challenge that’s happening right now, in various sectors.”
However, the regulators said AI could also be leveraged to enhance their own work to support the stability of the financial system.
Ms Bullock observed: “I wonder if as regulators, we can harness some of this. It can help us do our jobs better.
“But we do need the frameworks to get on top of it.”
ASIC’s Joe Longo said regulators “don’t have much of a choice” and would need to use AI to counter risks and strengthen enforcement action against misconduct.
“We live in an interconnected world, with very high community expectations around service delivery,” he said.
“Helping someone getting a driver’s licence or paying a bill — it’s society’s expectations that those things will happen safely, quickly, and very inexpensively.”