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Abstract: 

The use of AI in the delivery of financial services can provide a financial institution with several key benefits, including enhanced fraud detection, more accurate underwriting and pricing decisions, and improved customer service, among others. However, as noted by various government agencies, the use of AI can also bring with it significant legal and regulatory risks, presenting challenges to an institution in managing compliance risk, credit risk, reputation risk, and operational risk. In particular, AI can raise consumer protection concerns, such as an increased risk of bias and discrimination in credit underwriting decisions and increased opportunities for predatory targeting and price discrimination. The use by AI systems of massive amounts of data increases the risk of violating privacy and cybersecurity regulations at both the federal and state levels. Financial institutions using AI should assess their risk management frameworks to ensure the associated risks are effectively mitigated.

Keywords: Legal and Regulatory Risks of AI; Privacy and Cybersecurity Considerations; American Data Privacy and Protection Act (“ADPPA”)

Affiliations:  1: Winston & Strawn LLP; 2: Winston & Strawn LLP.