Corporate watchdog ASIC is urging financial services and credit licensees to update their governance practices in light of the swift adoption of artificial intelligence (AI).
This warning comes from ASIC’s inaugural state of the market review, which assessed AI use among 23 licensees.
ASIC chair Joe Longo (pictured above) emphasised the importance of ensuring that governance frameworks evolve alongside AI usage.
“Our review shows AI use by the licensees has to date focussed predominantly on supporting human decisions and improving efficiencies,” Longo said.
However, he noted a significant shift is on the horizon, with approximately 60% of licensees planning to increase their AI usage.
The findings revealed troubling gaps in governance, with nearly half of the licensees lacking policies that address consumer fairness or bias. Even fewer had guidelines for disclosing AI use to consumers.
“It is clear that work needs to be done – and quickly – to ensure governance is adequate for the potential surge in consumer-facing AI,” Longo said.
Without robust governance processes, significant risks could materialise.
“When it comes to balancing innovation with the responsible, safe and ethical use of AI, there is the potential for a governance gap,” Longo said, highlighting the dangers of misinformation and bias that could lead to consumer harm and erode market confidence.
Longo urged licensees to take proactive measures regarding their obligations and responsibilities related to AI.
“Existing consumer protection provisions, director duties and licensee obligations put the onus on institutions to ensure they have appropriate governance frameworks and compliance measures in place to deal with the use of new technologies,” he said.
Longo stressed the importance of conducting thorough due diligence to mitigate risks associated with third-party AI suppliers.
“We want to see licensees harness the potential for AI in a safe and responsible manner – one that benefits consumers and financial markets,” he said.
ASIC’s focus on AI usage among financial firms is part of its broader strategy to safeguard consumer outcomes and maintain the integrity of the financial system.
The regulator plans to monitor licensee activities closely, ensuring compliance and taking enforcement action when necessary.
For further insights, read the ASIC media release or download Report 798: "Beware the gap: Governance arrangement in the face of AI innovation" and Inside ASIC podcast – Episode 4: Tech regulation.
ASIC's review analyzed AI usage across 23 licensees in sectors such as retail banking, credit, insurance, and financial advice.
In 2024, ASIC examined 624 AI use cases that were either in operation or development as of December 2023, and engaged with 12 licensees to assess their approach to AI and consumer risk management.
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