“Urgent Need” For Central Banks to Adapt to AI: BIS

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REGULATION
“Urgent Need” For Central Banks to Adapt to AI: BIS

The Bank of International Settlements, known as the central bank for central banks, said there’s an “urgent need” by policymakers to better understand how AI is impacting the economy.

Central bankers also need to leverage the technology to help monitor data in real time to better track inflation, according to a Tuesday report.

AI has the potential to significantly enhance efficiency and lower costs in the financial sector, particularly in back-end processing, regulatory compliance and customer service, according to the BIS. For example, software developers can code more than twice as many projects per week when using LLMs through the GitHub Copilot AI.

The technology can also create sentiment indexes and detect money laundering. An LLM fine-tuned with financial news can create a sentiment index by extracting from social media posts, financial statements, and earnings transcripts. AI can also outperform traditional methods in tracking money laundering, potentially boosting correspondent banking, which has been in decline, according the BIS.

The tech also introduces risks, including potential bias and discrimination in credit decisions, data privacy issues and the lack of explainability in AI outputs.

Other use cases highlighted in the report:

• Improved credit scoring by leveraging unstructured data.

• Assessing property damage by analyzing images and videos for insurance claims.

• Predicting returns and optimizing portfolio allocation.

BIG PICTURE:
The BIS warning follows a U.S. Senate report last week that found regulators are behind in policing AI risks, which have been amplified by the tech’s rapid growth. ChatGPT has the fastest adoption rate of any technological breakthrough ever, easily outpacing the internet, smartphones and electricity. More than half of U.S. households have used a Gen AI tool in the last year, per the report.

Further Reading:

• Citigroup published a 124-page report last week on how AI will impact financial services.

FUNDRAISING
Norm Ai Raises $27 Million for AI-Driven Regulatory Tech Platform

Norm Ai raised $27 million in Series A funding Tuesday to expand its regulatory technology platform, which uses a proprietary language that converts regulations into computer code that can be read by large language models.

The New York-based company says Fortune 100 firms are using the technology currently for regulatory assessments. Insurance companies and asset managers are boosting efficiency by speeding up the publication of highly regulated content, according to a June 25 press release.

Norm Ai is designed to provide clear, actionable explanations of compliance findings, letting users self-serve initial rounds of regulatory compliance reviews.

Coatue Management led the round. Other investors that participated include: Bain Capital Ventures, Blackstone Innovations Investments, New York Life Ventures, Citi Ventures, TIAA Ventures, and Jefferson River Capital, the family office of Tony James, the former President and COO of Blackstone.

In under a year, the company has raised more than $38 million from leading firms.

BIG PICTURE:
“Going through compliance” at many companies is often a slow and tedious process. Given that regulations have grown in size and complexity, an AI agent used by a non-regulatory employee would reap significant gains across multiple industries.