Treasury Advocates for Gradual AI Adoption in Banking
The Treasury Department is advocating for the use of artificial intelligence (AI) in the financial services sector, emphasizing a strategy that is both gradual and robust. This initiative aims to foster public-private partnerships and the potential establishment of AI sandboxes, as outlined by Secretary Scott Bessent during recent Congressional testimonies.
Congressional Testimonies
During appearances before the House Financial Services Committee and the Senate Banking Committee, Bessent addressed the AI priorities identified in the Financial Stability Oversight Council’s (FSOC) Annual Report to Congress. This report, published in December, highlighted the need for harnessing AI to promote financial stability as one of its four key focus areas.
Identifying Regulatory Impediments
Senator Mike Rounds, co-chair of the Senate AI Caucus, queried Bessent about the barriers preventing banks from adopting AI responsibly, particularly in areas like compliance, fraud detection, and risk management. Bessent acknowledged that there remains “a great amount of learning to do” regarding AI. Therefore, the current approach involves regulatory agencies collaborating with private partners to implement AI in a gradual manner, ultimately leading to its robust usage.
The Dual Nature of AI
Bessent noted the dual nature of AI as both a beneficial tool and a potential risk, citing concerns from both state and non-state actors. “It is a public-private partnership, and we are pushing very hard across the agencies and at Treasury,” he stated.
Proposed AI Innovation Labs
Last July, Senator Rounds introduced legislation directing various federal financial agencies, including the Securities and Exchange Commission and the Federal Reserve, to establish in-house AI innovation labs. These labs would function as sandboxes where agencies could test AI projects without the burden of excessive regulation or enforcement actions. Bessent expressed interest in the idea of a “time-limited AI sandbox” to allow financial institutions to safely experiment with AI tools while giving regulators a chance to assess associated risks.
Maintaining Regulatory Alignment
During discussions with Chair French Hill of the House Financial Services Committee, Bessent emphasized the importance of keeping technology development aligned with legislative frameworks. Hill specifically inquired about how AI could enhance customer service and strengthen compliance processes within the financial sector. Bessent identified two key aspects: improving service delivery and bolstering financial security through AI.
Enhancing Cybersecurity
Moreover, the Treasury sees AI as a means to enhance its cybersecurity posture. In discussions with Representatives Josh Gottheimer and Andrew Garbarino, Bessent highlighted the collaborative efforts with financial sector partners to conduct tabletop exercises and other activities that ensure all stakeholders operate from a unified strategy. “It’s important to work together,” he said, noting the rapid pace of technological advancement often outstrips regulatory frameworks.
Conclusion
The Treasury’s approach to AI in banking is characterized by a careful balance of innovation and regulation, aiming for a future where AI tools are seamlessly integrated into the financial services landscape while maintaining robust safeguards.
