Banks Face New Privacy Risks with AI Decision-Making

Banks are ramping up their use of agentic AI to streamline financial services, but stricter privacy regulations could create compliance challenges. With new laws requiring disclosure of automated decision-making by late next year, banks must update their policies to detail how customer data is processed. While AI helps automate tasks like loan approvals and fraud detection, its growing autonomy raises concerns about transparency and accountability.

Agentic AI refers to systems that make independent decisions without human intervention. While banks have long utilised machine learning for tasks such as data analysis and chatbot interactions, the latest tech advancements now enable AI to perform real-time actions like fund transfers. However, this shift introduces regulatory complexities, particularly in ensuring customers understand and trust AI-driven financial decisions.

Financial institutions are embedding AI into knowledge management systems to improve operational efficiency. AI can generate emails, documents, and software code while also providing faster insights for both employees and customers. However, as AI moves from offering recommendations to taking direct action, such as automatically transferring funds to prevent overdrafts, banks must carefully balance innovation with regulatory compliance.

The challenge lies in maintaining transparency while using AI for critical decision-making processes. Unlike traditional rule-based systems, AI relies on probability-driven logic, which can sometimes result in opaque decision-making. Financial regulators require banks to disclose the rationale behind AI decisions, meaning institutions need robust monitoring measures to track and explain automated outcomes.

With Australian banks possessing strong digital infrastructures, they seem well-equipped to meet these new regulatory demands. However, ensuring regulatory compliance requires banks to thoroughly vet their AI processes and maintain strict oversight of third-party tech providers. As agentic AI continues to evolve, maintaining customer trust will be crucial for banks.

Source: Australian Financial Review, Revvence, Weforum