Navigating the artificial intelligence regulatory landscape: Insights for credit unions

In an era where artificial intelligence (AI) is set to redefine the contours of banking, credit unions find themselves at a crossroads.

The potential of generative AI (GenAI) to enhance aspects from member service to operational efficiency is immense, yet the rapid pace of regulatory changes demands a cautious approach. For credit unions, understanding the evolving compliance and regulatory framework is not just about mitigating risks—it’s about seizing opportunities in a responsible manner.

The slow embrace of AI in banking

Despite AI’s promise, its adoption within the credit union sector has been measured. Many have been tentative, choosing to focus AI applications on improving operational tasks and enhancing predictive analytics. This cautious stance is partly due to the regulatory uncertainties and the potential for errors in early AI technologies that have left some wary. Yet, as AI technologies mature, their potential to transform member services and streamline operations becomes increasingly clear.

Legal implications and AI

The deployment of artificial intelligence in banking raises legal considerations, especially around data management and the regulation of generated content. With AI’s capacity to process vast amounts of confidential information, credit unions must navigate heightened risks of fraud and cybersecurity threats. The absence of comprehensive AI-specific regulations adds to the complexity, leaving credit unions to chart their course through a murky legal landscape.

Existing AI regulations

Despite the lack of clear-cut AI regulations in the banking industry, there have been notable efforts to establish guidelines. The Executive Order issued by The White House in October 2023, for instance, aims to balance AI innovation with risk management, introducing standards for AI safety and cybersecurity. Legislative actions, like the Algorithmic Accountability Act of 2023, seek to safeguard consumers from potential biases in AI-driven decision-making processes.

Additionally, in April 2023, the CFPB, along with the DOJ, FTC and EEOC, issued a joint statement declaring their commitment to enforce existing laws and regulations to mitigate the risks of AI. Their specific area of concerns included black box algorithms that make credit decisions along with algorithmic marketing and digital redlining. The CFPB followed this up in September 2023 with guidance specific to credit denials, noting legal requirements for lenders around the use of AI and providing specific, accurate reasons for credit denials.

For credit unions, these developments underscore the importance of staying abreast of privacy and data protection laws, including GLBA and CCPA/CPRA, to ensure compliance. Moreover, addressing AI bias and discrimination is crucial to maintaining the trust and confidence of members.

The future of AI compliance and regulation

As the regulatory landscape for AI continues to evolve, credit unions must adopt a proactive stance. The forthcoming EU AI Act and the SEC’s focus on predictive analytics highlight a global shift towards more stringent AI oversight. Credit unions should prepare by evaluating current practices, anticipating regulatory changes, and establishing robust AI governance programs. This includes comprehensive risk assessments, data privacy compliance, and ongoing monitoring to ensure alignment with both current and future regulations.

Embracing AI responsibly

The journey towards integrating AI into credit union operations offers a path to enhanced efficiency, improved member experiences, and operational cost savings. However, navigating the associated regulatory framework requires diligence and foresight. By staying informed and prepared, credit unions can leverage AI’s potential while safeguarding against emerging risks.

As we continue to explore the intersection of AI and banking, credit unions are encouraged to delve deeper into this topic.

Visit Alkami.com for more information about the work Alkami is doing with predictive AI modeling using artificial intelligence in banking.

 

Contact the author: Alkami

Contact the author: Alkami

 

About Alkami

Alkami Technology, Inc. is a leading cloud-based digital banking solutions provider for financial institutions in the United States that enables clients to grow confidently, adapt quickly, and build thriving digital communities. Alkami helps clients transform through retail and business banking, digital account opening, payment security, and data analytics and marketing solutions. To learn more, visit www.alkami.com.

Dennis Irwin

Dennis Irwin

Dennis Irwin is a seasoned professional in Global Risk Management and Compliance, blending financial, operational, and project management skills to tackle operational and regulatory risks effectively. His strategy centers on ... Web: https://www.alkami.com Details