March 05, 2025
Hi everyone, and welcome! Before we turn to today’s show, I want to mention that I also recorded a separate short episode, just now, and posted it as a stand-alone mini-show, sharing some thoughts on the disruption underway in the financial regulatory system in the U.S. There’s a lot going on, and we plan to bring some lively, problem-solving discussion into our Barefoot Innovation dialogue in the coming weeks and months. As I said in another recent show, there is an opportunity to explore shifting toward a new “Regulation 2.0” paradigm using better technology. So please check out the other short post for today!
Meanwhile, I’m excited to share this show with you. Three years ago, generative AI burst into our lives with a speed unlike anything we’ve ever seen before. It immediately became the most rapidly adopted technology in the history of the world, and it’s now spreading through nearly everything, changing how we work, play, learn, write, create, connect, share, and everything else. That includes, of course, how we design, use and regulate financial services.
Last year, AIR undertook a multi-year, multi-project initiative to explore both the risks and opportunities arising from GenAI in finance. As part of this effort, we issued a call for papers, inviting input from stakeholders throughout the world.
Today’s show is with the authors of the three leading papers we received. They are:
Taken together, their papers cover three of the most important arenas of change for financial regulators and risk managers. Delicia lays out the issues impacting consumer financial protection. Henry looks at how GenAI is fueling rising financial crime and also can help fight it, especially through the lens of the Know-Your-Customer (KYC) rules in anti-money laundering (AML). And Adrienne rounds out the picture by proposing a governance framework for the brave new world of GenAI. Her perspective especially interested me because her own background is technology, not governance.
One thread that weaves through many of their insights is that AI in general, and GenAI specifically, is a double edged sword. It is creating huge new risks, many of which are novel and very difficult to counter through traditional risk management. At the same time, GenAI is also offering extraordinary new solutions. It can help solve the problems arising from AI. Importantly, It can also help solve older problems that have persisted through the years, resisting our older tools for curtailing them.
In that category, a great example is Delicia’s argument that we should explore equipping consumers with what she calls Guardian AI, to help people protect themselves from many of the confusing and even deceptive products and practices that are common in financial choices. I, too, have been advocating for this line of thinking in recent years – including that I think such tools should be legally obligated to serve solely the consumer’s best interest. If there are business models that could make such tools nearly universal, government could regulate those tools, and we might be able to streamline a lot of other consumer protection rules and regulations that, truth be told, fall short of achieving the goals that inspired them. Generative AI is suddenly making these possibilities into realistic options.
A year or so ago, I talked with someone who said finance is too complicated for AI. My view is that finance is too complicated for people. Most of us would benefit from having AI helping us!
The more I work with AI, the more it seems to me that, when it creates problems (which it does constantly!), our reflex should be not to reject using AI, but rather should be to ask whether AI could solve the problem it’s causing. In other words, the solution to AI problems is often more AI. I think that spirit is reflected in the insights of today’s guests.
Below are links to all three of their papers, as well as numerous other resources that they provided to help our listeners learn. Please also check out our AIR learning series on Generative AI, our previous episode with Nell Watson on AI ethics and governance, and our recent show and our new joint paper with Google on Model Risk Management (MRM) for GenAI. Note that the latter will also be the focus of an upcoming roundtable.
And here is our white paper by Chris Calabia.
Dr. Henry Balani is Global Head of Industry & Regulatory Affairs at Encompass, drawing on a long background as a financial services executive and academic addressing regulatory technology issues. At Encompass, he focuses on thought leadership for combating financial crime through technology. As an academic, Dr. Balani researches the impact of AML penalties and regulations on banking. He speaks at major regulatory compliance conferences advising US government agencies on the operational impact of regulations in banking and consults with the IMF, FATF and the World Bank.
Further resources recommended by Henry:
Delicia Reynolds Hand is Senior Director, Digital Marketplace at Consumer Reports. She leads the development of reliable and iterative testing frameworks and standards and policies for the digital marketplace to shape the code for social good innovation. This effort builds on her work launching a digital finance testing and ratings program as CR’s Director of Financial Fairness. Her career in public service includes ten years at the Consumer Financial Protection Bureau (CFPB) in various roles; Legislative Director at the National Association of Consumer Advocates; General Counsel at the Center for Community Change and Center for Community Change; and Senior Counsel in the office of U.S. Rep. John Sarbanes of Maryland.
Dr. Adrienne Heinrich heads the AI Center of Excellence at Union Bank of the Philippines and is AI Advisor of Aboitiz Data Innovation. She previously led AI and Machine Learning for personal health and connected care products at Royal Philips. Adrienne obtained her Master’s degree in Information Technology at ETH Zurich and received her PhD at the Eindhoven University of Technology (Netherlands) on video motion analysis for emerging application areas.
Further resources recommended by Adrienne:
We have wonderful episodes coming up. We’ll have a live panel episode discussing our new white paper on Earned Wage Access, including regulatory issues and how EWA fits into broader fintech innovation and consumers’ financial lives. We’ll have a discussion with Saket Narayan of AWS, discussing modern technology applications needed by regulators. We have a show with Neya Narkhede of Oscilar exploring how AI can help manage fraud risk, and much more!
As noted before, we’re also planning some special shows exploring the big issues arising as the new administration takes office in the U.S., especially with its focus on technology and efficiency, on fintech, on crypto, on fraud and crime, and on the future of community banks.
Speaking of banks and fintech, this month we are hosting a TechSprint on bank + fintech arrangements, looking at how best to address related regulatory concerns. Later this month I will join Gretchen Keller and Dana Lawrence on their podcast In Fintech We Build Trust to discuss the upcoming bank + fintech TechSprint and the challenges we are hoping to solve. We’re also preparing our upcoming “battlefront” exercise on combatting fraud in the age of AI. We will be co-hosting a webinar with Google exploring the latest insights and regulatory considerations for Generative AI models, discussing our new paper on MRM, and recording a live podcast episode with a panel of experts on the future of Earned Wage Access (EWA).
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