The Bangko Sentral ng Pilipinas (BSP) has issued a guidance paper to help financial institutions develop artificial intelligence (AI) governance frameworks that manage potential risks and ensure ethical use of these emerging technologies.
The guidance paper, titled “Governance Principles for Artificial Intelligence in Financial Services,” outlines the minimum supervisory expectations for AI adoption in the financial sector. BSP Deputy Governor Lyn I. Javier emphasized the importance of establishing effective controls and safeguards against the risks associated with AI adoption, such as data privacy concerns and bias leading to unfair and discriminatory practices.
The BSP recommends that financial institutions formally develop their own AI Governance Framework, proportionate to the nature, extent, scale, complexity, and materiality of their AI systems. This framework should be tailored to the institution’s overall operational complexity and risk profile, following the principles put forth in the guidance paper.
The guidance paper highlights the need for transparency, accountability, responsibility, sustainability, and security in AI governance. It emphasizes the importance of having a centralized AI systems inventory, regular review of all AI systems, and clear definition of responsibility among management, developers, and stakeholders.
The BSP also emphasizes the need for human oversight and proper segregation of roles and ownership in AI system lifecycle. The central bank should be able to monitor, oversee, and review the development and deployment of AI algorithms and technology.
The guidelines push banks towards formal AI governance with clear standards on transparency, accountability, fairness, security, and human oversight, rather than just impromptu AI management. This is timely, as banks are already using AI for various purposes, including credit scoring, fraud detection, customer service, compliance, and risk management.
The BSP’s existing IT Risk Management framework covers emerging technologies, but a new Model Risk Management framework will focus on algorithmic fairness and model risks throughout the entire model lifecycle using a proportionate and risk-based approach. The central bank also encourages financial institutions to consider the STARS principles, which stand for sustainability, transparency, accountability, responsibility, and security.
The guidelines aim to ensure that financial institutions use AI safely and reap its benefits while fostering trust, strengthening resilience, and promoting sustainable innovation within the financial ecosystem.
The BSP recognizes that financial institutions are at different stages of AI maturity, which means their risk exposures vary. Therefore, AI governance frameworks can help address operational, information technology, model, market conduct, reputational, strategic, and legal risks associated with AI use.
The guidance paper also covers vendors or outsourced service providers that support these institutions’ AI-related activities under a shared responsibility model. The BSP encourages financial institutions to ensure that identified risks, errors, and uncertainties have clearly defined mitigation procedures and regular review of all AI systems for appropriate monitoring and assessment of stakeholders.
Furthermore, the BSP emphasizes the importance of having a human in the loop, while AI systems provide recommendations. The output of AI systems should not replace or diminish human responsibility. Human oversight and proper segregation of roles and ownership should be integrated across the AI system lifecycle.
The BSP also encourages financial institutions to ensure that the main objective of the AI system is to contribute positively to the individual’s well-being and support the greater good of the financial system. Lastly, for security, financial institutions must have rigorous cybersecurity and data quality controls in place, conduct regular risk-based assessment for potential vulnerabilities in the AI systems, and have risk mitigation controls, systems testing, and incident response procedures that also cover their AI models and systems.
The guidelines aim to promote responsible AI use and mitigate potential risks associated with AI adoption in the financial sector.
