The recent Executive Order from the White House on the development and use of artificial intelligence (AI) represents an important moment in the governance of AI within the financial-services sector.
While financial regulators have taken some initial steps this year to grapple with the technology’s implications for finance, the recent presidential action explicitly empowers and encourages more meaningful action across the financial regulatory landscape. It also sets in motion several events that will have notable implications for the sector’s regulatory frameworks over the next several years.
The order, which requires federal agencies to take certain steps regarding risks and best practices for AI, also carries implications for communicators in financial services.
- Deepening of Regulatory Oversight: The Executive Order is emblematic of the broader trend toward heightened scrutiny and focused directives regarding the use of AI. The movement towards increased oversight will accelerate throughout 2024. Federal regulators may also utilize enforcement actions to provide the outlines of regulatory frameworks for the industry.
Consideration: Increased regulatory scrutiny will broaden and increase organizations’ public policy-related reputation risks. It is critical to understand the nature of those risks for your organization and how they may change over the next 12 months.
- Elevated Awareness of AI Risks: New annual risk assessments, to be undertaken by federal agencies, along with public reports of AI-risk mitigation best practices, will increase awareness across stakeholder groups of the negative potential of AI’s application in financial services.
Consideration: While all commercial and technological developments introduce new risks, AI also stands to deliver significant benefits to market participants, consumers, and other financial services stakeholders—some of which are being demonstrated today. Industry communicators should take thoughtful steps today to develop and share the industry’s positive and beneficial AI innovation narrative, while not ignoring some of the challenges that it brings.
- Social and Ethical Implications: The Executive Order provides industry participants their initial indication of the commercial activities—consumer finance, housing, and digital marketing—that will be first to receive heightened scrutiny related to potential bias against protected groups.
Consideration: With financial services marketing and communications placed squarely in the regulatory spotlight, it’s incumbent on practitioners to consider and understand the AI systems their organizations are using and the potential biases and unintended consequences that might result. Digital marketing practices will now be a key area of focus for regulators seeking to mitigate adverse impacts from AI in finance.
- Market Behavior and Competition: The explicit focus on promoting competition may further influence market dynamics and antitrust considerations. Considered in combination with the order’s push to have the FTC apply its existing related authorities, this is a notable signal that the competitive effects of AI technology in the sector will come under scrutiny.
Consideration: Market participants should be mindful of increased scrutiny of AI’s impact of the competitive dynamics in their industry or market. Communications and major business announcements should be considered in light of this scrutiny.
The executive order marks a pivotal moment that extends beyond mere regulatory compliance. It encourages a rethinking of how organizations manage risk, engage with stakeholders, and uphold ethical standards in an AI-driven landscape. It’s also a notable milestone for communicators in the sector, who will play a crucial role in balancing the narrative between AI's potential benefits and inherent risks.
Given the anticipated ramp-up in AI-focused financial regulatory activity through 2024, organizations should be proactive and adapt to the evolving reputation, commercial, and policy landscape. Effective communication will be paramount, not only to maintain compliance but also to seize the strategic opportunities that this complex and nuanced future will undoubtedly offer.
Chris Donahoe, Executive Vice President and Head of AI Strategy, chris.donahoe@edelmansmithfield.com