AI explained: AI and banking

Emerging technology lawyers Therese Craparo, Anthony Diana and Howard Womersley Smith discuss the rapid advancements in AI in the financial services industry. AI systems have much to offer but most bank compliance departments cannot keep up with the pace of integration. The speakers explain: If financial institutions turn to outside vendors to implement AI systems, they must work to achieve effective risk management that extends out to third-party vendors. ----more---- Transcript: Intro: Hello and welcome to Tech Law Talks, a podcast brought to you by Reed Smith's Emerging Technologies Group. In each episode of this podcast, we will discuss cutting edge issues on technology, data, and the law. We will provide practical observations on a wide variety of technology and data topics to give you quick and actionable tips to address the issues you are dealing with every day. Therese: Hello, everyone. Welcome to Tech Law Talks and our series on AI. Over the coming months, We'll be exploring the key challenges and opportunities within the rapidly evolving AI landscape. And today we'll be focusing on AI in banking and the specific challenges we're seeing in the financial services industry and how the financial services industry are approaching those types of challenges with AI. My name is Therese Craparo. I am a partner in our Emerging Technologies Group here at Reed Smith, and I will let my colleagues on this podcast introduce themselves. Anthony? Anthony: Hey, this is Anthony Diana, partner in the New York office of Reed Smith, also part of the Emerging Technologies Group, and also, for today's podcast, importantly, I'm part of the Bank Tech Group. Howard: Hello, everyone. My name is Howard Womersley Smith. I'm a partner in the Emerging Technologies Group at Reed Smith in London. As Anthony says, I'm also part of the Bank Tech Group. So back to you, Therese. Therese: All right. So just to start out, what are the current developments or challenges that you all are seeing with AI in the financial services industry? Anthony: Well, I'll start. I think a few things. Number one, I think we've seen that the financial services industry is definitely all in on AI, right? I mean, there's definitely a movement in the financial services industry. All the consultants have said this, that this is one of the areas where they expect AI, including gender of AI, to really have an impact. And I think that's one of the things that we're seeing is there's a tremendous amount of pressure from the legal and compliance departments because the businesses are really pushing to be AI forward and really focusing on AI. So one of the challenges is that this is here. It’s now. It's not something you can plan for. I think half of what we're seeing is AI tools are coming out frequently, sometimes not even with the knowledge of legal compliance, sometimes with knowledge of the business, where because it's in the cloud, they just put in an AI feature. So that is one of the challenges that we're dealing with right now, which is catch up. Things are moving really quickly, and then people are trying to catch up to make sure that they're compliant with whatever regs that are out there. Howard? Howard: I agree with that. I think that banks are all in with the AI hype cycle, and I certainly think it is a hype cycle. I think that generally the sector is at the same pace, and at the moment we're looking at an uptick of interest and procurement of AI systems into the infrastructure of banks. I think that, you know, from the perspective of, you know, what the development phase is, I think we are just looking at the stage where they are buying in AI. We are beyond the look and see, the sourcing phase, looking at the buying phase and the impingement of AI into those banks. And, you know, what are the challenges there for? Well, challenges are twofold. One, it's from an existential perspective. Banks are looking to increase shareholder value, and they are look