AI may pose novel challenges to governance: RBI Deputy Gov

AI may also pose some novel challenges for governance, especially where the technology is used to facilitate autonomous decision-making, Rajeshwar Rao, Deputy Governor, Reserve Bank of India said at the 106th Annual Conference of Indian Economic Association in Delhi.  “AI may limit or even potentially eliminate human judgment and oversight. Some of the data and model issues such as prompt injection, hallucinations, and toxic output can also have implications for governance frameworks, especially in financial institutions,” Rao said further.  

According to him, this may necessitate that regulators and the management have a re-look at the frameworks for consumer protection, cybersecurity, and data privacy.  Rao also made some suggestions to overcome governance issues including the option of ‘putting a human in the loop’ to help build trust in the AI-driven systems. 

“Financial institutions would therefore need to institute governance structures that oversee the entire lifecycle of AI systems, especially the GenAI - from data acquisition to model training and continuous evaluation. Regular audits and assessments would also be essential to verify the fairness, accountability, and compliance of AI applications with extant laws and regulatory standards,” Rajeshwar said. 

He also opined that AI models are inherently complex and opaque requiring extra caution to ensure accountability. “For this reason, financial institutions may find it difficult to explain an adverse or biased decision outcome from an AI model to customers or supervisors,” Rao added further.