Heavy reliance on AI could lead to concentration risks in the financial sector: RBI Governor
Oct 14, 2024
New Delhi [India], October 14 : The Reserve Bank of India (RBI) Governor Shaktikanta Das on Monday cautioned that heavy reliance on artificial intelligence (AI) could lead to concentration risks in the financial sector.
The Governor was speaking at the 90th High-Level Conference organized by the Reserve Bank of India in New Delhi.
He noted that the increasing use of AI might allow a few technology providers to dominate the market, which could pose systemic risks.
"The heavy reliance on AI can lead to concentration risks, especially when a small number of tech providers dominate the market," said Governor Das.
The Governor also pointed out that AI introduces new vulnerabilities, including increased susceptibility to cyberattacks and data breaches. The opacity of AI systems further complicates matters, making it difficult to audit or interpret the algorithms driving financial decisions.
"Additionally, AI's opacity makes it difficult to audit or interpret the algorithms which drive decisions. This could amplify systemic risks, as failures or disruptions in these systems may cascade across the entire financial sector" Das added.
Governor Das emphasized the importance of banks and financial institutions implementing strong risk mitigation strategies to address these risks. He noted that while AI and Big Tech offer significant advantages, financial institutions must ensure they do not become overly dependent on these technologies.
"In the ultimate analysis, banks have to ride on the advantages of AI and Big Tech and not allow the latter to ride on them," Das warned.
He urged financial institutions to remain vigilant, highlighting the need for a balanced approach in leveraging AI's potential while addressing its inherent risks.
The Governor's remarks come at a time when AI and machine learning are increasingly being integrated into financial services, enhancing efficiency but also raising concerns about cybersecurity, transparency, and regulatory oversight.
With the rapid advancements in technology, the RBI is focused on ensuring that the financial sector remains resilient to both traditional risks and the emerging risks posed by AI and Big Tech.
