Salzburg Global Fellow Adelina Cooke explains the role of artificial intelligence in financial technology innovation
Adelina Cooke is the Global AI Policy Lead at Google Cloud. In this position, she oversees global regulatory engagements for Google’s AI and Cloud businesses, which serve both enterprise and government clients. She focuses on integrating top research into products, addressing distinct enterprise value chain opportunities and risks compared to the consumer market.
Stephanie Nicole Jura, Salzburg Global Communications Intern: What is the potential for artificial intelligence (AI) in the financial technology (fintech) industry to drive innovation and improve financial services?
Adelina Cooke, Global AI Policy Lead, Google Cloud: It is not just with fintech opportunities, as there are a lot of opportunities to support the worker. Consider the early studies on workforce which have shown that when you pair a generative AI system that has been trained on a specific need for an enterprise with an entry-level worker, he or she can quickly function as an intermediate worker. For somebody who has been on the job for a few years, that is a huge change. Think about that in terms of the ability to serve customers more quickly, bringing in new workforce members, and supporting a growing business, which are great opportunities.
On the other side of the coin, if you have workers at your enterprise for quite a long time who might be bored in their job, there are risks of the toll that labor can take on a workforce. Generative AI can support that worker too, specifically in the cybersecurity space where we see cyber threats operate in a very complex dimension. A worker who is tired or burnt out may not be able to effectively combat the threat of cyber security paired with new AI technologies. By matching that cybersecurity professional with a cybersecurity generative AI system, the defenses against cyber threats are equally matched, if not superior. There are opportunities up and down the workforce to make everybody, both the early and longtime worker, more effective.
SNJ: What are the primary challenges you see in balancing the need for regulation with the desire to foster innovation in fintech?
AC: The challenges are in adapting risk management frameworks... Banks and financial institutions have long-time risk management strategies that deal with the innovation or technology that they have had over a long time, and as they seek to incorporate new technology, they have to evolve their risk management approaches. What is interesting is that they do not have a choice, because the outside world is bringing to bear new technologies. Cybersecurity is a good example where, even if banks decided to be conservative and wait to see how the innovation played out before they started adopting it, they would be caught off guard by new cybersecurity attacks that are supported by generative AI.
It will come in one way or another and the opportunity to prepare for it is now. They should understand what the technology’s opportunities are, but certainly what the risks are to your business. There are other financial institutions adopting this technology to make more efficient trade and find inroads in new populations for loan making. Not adapting or understanding new technologies is a risk that should be acknowledged.
SNJ: In your opinion, what policy objectives should be prioritized to ensure consumer protection without stifling fintech innovation?
AC: I believe that having a risk management strategy for artificial intelligence gets you 80% there. I have been in the AI space for about eight years and customers outside of the financial space that I work with still ask [for the] best practices for AI governance. They are not only trying to adapt to the innovations but also trying to govern them. It is like flying a plane and building it at the same time, which may not be the safest outcome for consumer protection. That is the real challenge with generative AI; it lets you deploy solutions ahead of understanding the potential risks right away, and that is not the best practice.
Financial institutions are probably more cautious than the average enterprise though. Because of regulatory obligations, FSIs understand that understanding outcomes and impacts before launching is the best way for innovation and ensures consumer protection. Testing is the only way and not just testing once or three times in the beginning; you should make sure that you are testing or monitoring outcomes throughout the lifecycle of that machine.
SNJ: What regulatory models do you believe are most promising for addressing the unique challenges posed by AI in fintech?
AC: The concern is on the lack of regulatory interoperability across countries. If you lack laws, regulations, and standards that allow banks and other financial institutions or any other enterprise to serve markets. For example, I am from the United States and am currently in Austria. Imagine if my United States financial institution could not serve me in Austria over some regulatory concern. It would pose a consumer challenge. While that scenario is theoretical, in the AI space, particularly in Europe, we are witnessing divergence on how to govern these technologies. We see technology proliferate in some regions and be pulled back in others. It is a risk for countries that seek a different path for regulation since you cannot keep the innovation out. It will come in one way or another. Overregulation creates the risk of preparing for yesterday’s problems instead of tomorrows.
It is worth mentioning that we have had privacy and security obligations as an enterprise over a long time. Most of those controls are highly relevant today in AI. There are new controls, but every regulator should first understand the privacy and security controls that remain very relevant today. We may have to update the control to manage the risk, but there is no such thing as starting a new AI governance framework. An AI governance framework needs to be layered into a privacy and security risk management or governance framework.
Adelina Cooke attended the Salzburg Global Finance Forum on "Financial Technology Innovation, Social Impact & Regulation: Do We Need New Paradigms?" in June 2024.
