Financial sector needs a tailored AI framework to reduce regulatory risks and protect consumers, says new Durham University research

Finance and banking institutions need a regulatory framework for the implementation of AI, in order to mitigate significant risks such as data privacy leaks and biases in data, according to new research by Durham University Business School.

The European Union's AI Act should be the basis of this new framework - tailored specifically to the finance sector to safeguard against the risks that come with AI, suggests Habib Ahmed, Sharjah Chair in Islamic Law & Finance at Durham University Business School, who authored the study.

"AI laws are currently sparse and fragmented – but constantly evolving," says Professor Ahmed. "While some countries have implemented AI laws – like the EU and China – others have taken a lighter touch, like the UK and the US."

When it comes to AI, consumers face significant risks including the misuse of personal data, increased biases, over-reliance on third parties not affiliated to the finance institution, and cybersecurity concerns. Professor Ahmed’s work introduces a global framework to tackle these issues for all financial institutions.

To do so, Professor Ahmed first identified the common risks that face the finance sector when implementing AI, finding that AI implementation can dramatically impact core regulatory objectives such as financial stability, consumer protection and financial integrity.

Professor Ahmed then drew inspiration from existing AI regulatory frameworks – notably the European Union's (EU's) AI Act, which outlines specific mechanisms for risk mitigation, governance, and oversight.

His framework assesses risks when it comes to AI, identifying them under one of four categories:

Unacceptable– if an AI system is deemed unacceptable, it should be prohibited and not be used at all by finance institutions. This could include any AI usage that manipulates people's decisions or exploits them, i.e. scraping facial imagery.

High– these AI systems must be regulated and should be utilised with caution, as they can pose significant risks to people's health, rights or security, i.e. access to vital services or data.

Limited– for low-risk AI usage, the framework suggests that providers should be transparent and inform users when they are interacting with AI, i.e. content, text or video information.

Minimal– AI usage here does not need to adhere to a framework, i.e. AI spam filters or video games.

"The use of AI in finance is going to increase in the future and its impact is set to be extremely high," says Professor Ahmed. "Finance affects everyone – from the day-to-day consumer to the global markets – and if we are risking data leaks, biases in data or misleading information due to AI, we are drastically affecting all aspects of financial life, both at the micro and macro levels."

Professor Ahmed suggests that policymakers and regulators should be exploring frameworks like the EU AI Act and apply these to finance in order to truly protect consumers from the risks arising from AI.

If you would like to receive a copy of the research paper or speak to the researcher, please contact Peter Remon at BlueSky Education – peter@bluesky-pr.com / +44 (0) 77 235 228 30.