Barefoot Innovation Podcast

The future of finance — and therefore financial regulation — is technology, and especially AI. This means that the regulatory and risk community has a lot of work to do.

I’m joined today by Behnaz Kibria, Director of Google Cloud Public Policy, to talk about one area that needs to undergo deep rethinking. Google and AIR have just released a new white paper on Model Risk Management (MRM), as the second in an MRM series we have developed together. The earlier paper looked at MRM generally; this one drills down specifically on the MRM issues surrounding the most mold-breaking tech change ahead — generative AI.

Using data models in financial services has always produced risks, partly because of the “black box” factor. These models perform analyses that generally can’t be done by the people using the outputs. The results the models produce tend to look very definitive, even though we know that their accuracy depends on the quality of the data that was fed in and on the design and upkeep of the model. This risk of relying on flawed models has generated long-standing best practices for model validation, by both industry risk managers and regulators.

Today, those risks are compounding as more data is used, more models use AI, the AI becomes more sophisticated, and more people use models — increasingly with user-friendly interfaces that can sometimes cause the uses to become detached from the model design controls.

In our conversation, Behnaz starts by explaining how GenAI differs from other forms of AI and the resulting challenges it is presenting. She lays out how financial companies are beginning to use GenAI. She talks about the fundamental principles that guide MRM, which are largely timeless, and then walks us through the unique issues emerging from GenAI.

One key area is whether current regulatory frameworks are fit for purpose as banks increasingly use AI. We talk about what steps financial institutions need to take as they integrate GenAI. And we talk about advice for regulators, themselves.

In our discussion, we try to strike a balance between practical advice that listeners can put to use right away, and efforts to stretch all our thinking about the possibilities of a full paradigm shift, in the years immediately ahead.

Be sure to come to the show notes to get both white papers, and also AIR’s related work, including our white paper on generative AI and our new white paper by my colleague Nick Cook, the Financial Regulator’s Odyssey, on why and, importantly, how, regulators will need to transform the technology that they use, themselves.

Behnaz Kibria

Behnaz Kibria is a Director covering global cloud public policy issues at Google. She was previously the Deputy Chief of Staff of the Office of the U.S. Trade Representative (USTR), where she served as a principal policy advisor to Ambassador Michael Froman. Earlier in her career, Behnaz served as Trade Counsel to the Committee on Ways and Means in the U.S. House of Representatives, and as Assistant General Counsel at USTR. Behnaz started her career as an associate at the law firm Hogan & Hartson.

Behnaz received her BA from Wesleyan University and her JD from the George Washington University Law School. She was born in Dhaka, Bangladesh, grew up in Africa, and currently resides in Arlington, Virginia with her husband and two daughters.

More for our Listeners

We have wonderful episodes coming up. We’ll talk with Daniel Gorfine of Gattaca Horizons about our upcoming white paper on Earned Wage Access and how it fits into broader fintech innovation and consumers’ financial lives. We’ll have a show we recorded live at the annual Washington summit of the National Bankers Association, focused on (what else?) AI. We have an exciting discussion  with the winners of our NextGenAI Call for Papers discussing strategic ways to use AI in financial services and regulation to benefit and protect customers. We have an episode with Saket Narayan of Amazon, discussing modern technology applications required by regulators. And we’ll have a fascinating conversation with Soups Ranjan of Sardine, on fraud (AIR is doing major projects on fraud). 

I saw many fans of the show at DC Fintech Week, Money 20/20, and then at the spectacular Singapore Fintech Festival. My AIR colleague Mariama Jalloh-Heyward spoke October 30 at the Africa anti-fraud conference hosted by Provenir and the Africa Fintech Network. AIR Chief Innovation Officer Nick Cook will be a guest speaker discussing the significance of robust regulation in fostering financial innovation in Africa at the event for Professor Iwa Salami’s new book, titled “FinTech Law and Regulation in Africa.” 

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