EU’s Artificial Intelligence Act: implications for banks and financial institutions

The European Council and Parliament have provisionally agreed on the world’s first set of rules for artificial intelligence (AI), known as the Artificial Intelligence Act. The regulation aims to ensure the safety of AI systems in the European market, striking a balance between fostering innovation and respecting fundamental rights. Key elements include a risk-based approach, penalties for violations, and governance structures.

This legislation introduces rules affecting high-risk AI models, with an emphasis on transparency, fundamental rights impact assessments, and measures supporting innovation. Notably, the AI Act establishes penalties for non-compliance based on a percentage of the offending company’s global annual turnover. The legislation has broader implications for the financial sector, particularly banks, which intend to deploy AI for various applications.

Implications for banks

Banks utilising high-risk AI systems may face stricter regulations and increased scrutiny, potentially impacting their operations. The risk-based approach outlined in the AI Act suggests that AI systems with the potential to cause harm will be subject to more stringent rules. Financial institutions using AI for tasks such as risk assessment, customer service, and fraud detection may need to undergo thorough impact assessments and adhere to additional regulatory requirements.

The Act’s focus on transparency and accountability could also influence how banks disclose the use of AI-generated content or decision-making processes to their clients.

The AI act is set to apply two years after its entry into force, with some exceptions for specific provisions.

The ABBL is closely monitoring developments in this area and supporting its members through dedicated events and meetings of the Financial Data Space Working Group, among other things.