Artificial intelligence regulation in financial services is increasingly becoming a supervisory issue, not simply a question of new AI legislation.
The Conference of State Bank Supervisors (CSBS) has released an Artificial Intelligence Supervisory Framework for use by state regulators in examining state-chartered banks and state-licensed nonbank financial institutions. The framework is intended to help examiners identify how institutions use AI, assess associated risks, and determine whether further review is warranted.
The framework is not a statute or uniform regulatory requirement. CSBS expressly states that it does not create new legal obligations or supervisory requirements. Instead, it gives examiners a common structure for evaluating AI use and, where appropriate, applying existing supervisory resources relating to third-party risk, model risk, consumer protection, operational risk, and other areas.
For nonbank financial services companies, that can include mortgage companies, lenders, money transmitters, debt collectors, and other licensed entities subject to state examination. Each state regulator will decide whether and how to use the framework.
The accompanying Core Examiner Guide also provides a preview of what an AI-related examination may involve. Examiners may request AI-related policies or procedures, inventories of AI systems and use cases, governance and oversight materials, risk assessments, vendor documentation, and information regarding monitoring and other controls. Consumer-protection considerations identified in the guide include accuracy, explainability, notices and disclosures, adverse outcomes, fair lending, and UDAP/UDAAP requirements.
For state-supervised financial institutions, the practical point is straightforward: companies should know where AI is being used, including through third parties, and ensure that their governance and documentation are sufficient to explain those uses and the controls surrounding them.
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