Bowman calls for tailoring AI regulations based on risk

Community banks should face tailored artificial intelligence regulations based on their size and risk profiles, said Federal Reserve Vice Chair for Supervision Michelle Bowman..Bowman’s comment came July 7 during a Financial Stability Board digital outreach event and less than one month after the FSB released a draft list of a dozen sound practices for banks to adopt AI. The recommendations covered the importance of organization-wide AI governance and overseeing AI use cases and risks. Bowman said she is aiming for final global AI standards to be tailored based on the size and riskiness of the bank. “What works or is a consideration for larger institutions using AI in complex applications is not appropriate for smaller institutions with less-complex AI use cases,” she added. “Our focus is on promoting innovation at financial institutions of all sizes, not just the largest ones.” Banks should outline how they use AI and whether it is material to their legal and regulatory obligations or business operations, Bowman added. “That actual use and materiality will help inform the type and intensity of the governance and controls that should be applied for the specific AI deployment,” she said. Bowman, who chairs the FSB’s Standing Committee on Supervisory and Regulatory Cooperation, started work on the report late last year. “Since that time, AI has continued to rapidly evolve, and financial institution use of AI has expanded,” Bowman said. “In light of these ongoing developments, it is important to engage the public to discuss the potential benefits of AI and the risks and other challenges that could arise with its use.” Her speech came as the Trump administration signals its openness to AI in banking. Last month, President Donald Trump signed an executive order for the Treasury and Department of Homeland Security to expand AI-powered cybersecurity tools to community banks.