RBI Wants Banks To Keep AI In Check: New Framework, Human Oversight And More Proposed

Artificial

intelligence has become a key part of banking systems across the world. India’s central bank, the Reserve Bank of India (RBI), has now proposed new guidelines to help banks manage risks linked to AI and machine-learning systems. The draft rules released on June 24 by the RBI, require banks and other regulated entities to create board-approved policies, maintain records of AI models, strengthen security checks and ensure human supervision when AI is used for important decisions.

Banks Must Create AI Risk Management Frameworks

As per the proposed framework, banks will have to build a detailed risk management system covering all models used by them, including AI and machine-learning tools. These policies must be approved by the bank’s board. The RBI said financial institutions will need to regularly review risks at two levels, individual AI models and the overall organisation. This means that banks must track how AI steam performs and also understand the larger risks created by using multiple automated tools. Notably, the central bank also asked lenders to take quick action if any model creates excessive risks. Depending on the situation, banks may be required to add stronger controls, limit the model’s usage, fix problems or completely remove the system. Banks will also have to report major AI-related risks and corrective actions to their board-level risk management committee. The proposed rules also highlight that banks must ensure that every model, including third-party AI tools, goes through independent testing and validation. Moreover, the RBI has also proposed that banks must maintain human control over AI systems involved in automated decision-making. This means important financial decisions cannot rely only on AI outputs without human review. The regulatory authority proposed that banks deploy override, suspension or deactivate mechanism, to which it referred to as ‘kill switches’ for AI systems.

Public Feedback Invited On Draft Guidelines

The RBI has invited comments and suggestions from stakeholders on the proposed guidelines. This feedback can be submitted until July 24.