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A new AI paradigm for financial regulation

The leading edge of fintech is moving faster than many regulatory capabilities, posing risks to financial stability, security and inclusion. Artificial intelligence applications could help flip the script, by transforming how regulators, risk managers and ordinary consumers interact with the financial system.

Generative artificial intelligence is now weaving its way through every facet of our lives, breaking old things and birthing new ones. One system that needs an update is how we oversee financial markets. AI, including generative AI, is going to catalyze a new regulatory paradigm for the financial system. If we design it right, it will be vastly superior to today’s approach.

Financial services are the lifeblood of thriving societies. We regulate them pervasively because they are complex and because, when they go awry, the damage can be devastating. Broadly speaking, financial regulation has four goals: 1) financial system stability, 2) consumer and investor protection, 3) financial inclusion, and 4) anti-money laundering (AML) and curtailing financial crime.

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Author

  • Jo Ann Barefoot is CEO & Co-founder of the Alliance for Innovative Regulation (AIR), a nonprofit organization working globally to promote a more fair, inclusive and resilient financial system by helping adapt financial regulation for the digital age. She hosts the global podcast show Barefoot Innovation and is Senior Fellow Emerita at the Harvard Kennedy School Center for Business & Government. She has been Deputy Comptroller of the Currency, partner at KPMG, Co-Chairman of Treliant Risk Advisors, and a staff member at the U.S. Senate Banking Committee. Ms. Barefoot has published more than 200 articles and is the author of numerous papers on financial regulation and technology, including the RegTech Manifesto.

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