Managing AI Model Risk In Financial Institutions: Best Practices For Compliance And Governance

Artificial intelligence (AI) and machine learning (ML) have moved to front and center in financial institutions' Bank Secrecy Act/Anti-Money Laundering (BSA/AML) and Office of Foreign Assets Control (OFAC) systems and models. AI/ML-based models present an opportunity to improve the efficiency and effectiveness of monitoring systems, but the complexity of these technologies have raised the stakes for model risk management.

Improper or insufficient model risk management can have significant consequences, such as erosion of regulators' trust, formal or informal regulatory actions including the possibility of expensive look-backs and remediation and regulatory fines, damaged reputation, financial loss, and internal inefficiencies.