AI Risk Management in the Financial Services Sector
Practical guidance for addressing AI risk management gap in financial services
The rapid adoption of AI in financial services is creating new and amplified risks for the sector, and governance and risk management practices have not kept pace. To help close this gap, the Actuaries Institute has partnered with UTS Human Technology Institute (HTI) to produce this practical guidance resource with an easy-to-implement and readily adaptable framework for financial services organisations of all sizes to manage AI risk.
The financial services sector has well-established processes for managing traditional risks, but AI creates a vastly different risk profile, meaning organisations need to go back to first principles when deciding how to manage AI risks and assign responsibility for oversight. Managing AI risk needs to be much more than a tick-box exercise.
"Organisations that choose to do nothing in this space will be exposed to new risks they are not equipped to deal with."
— Victor Bajanov, co-lead author
The framework provides practical guidance on how financial services organisations should address four fundamental questions on AI risks:
- Governance (how do we assign accountability for AI risks in our organisation?)
- Classification (how should we classify AI risks in our organisation?)
- Quantification (how might we quantify the risks?)
- Controls (what controls are most appropriate for common AI use cases?)
"This collaboration between the Actuaries Institute and UTS HTI brings together deep expertise in financial risk management and human-centred AI governance to help the sector respond to the opportunities and risks presented by AI."
— Prof Nicholas Davis, HTI Co-Director
The framework also includes a toolkit of resources to explain how it can be applied in financial services organisations with significant AI investments. It can also be adapted by smaller organisations, or those earlier in their AI journey, to suit their scale, complexity and risk appetite.
"As experts in data driven analysis, risk management, and long-term thinking, actuaries are well placed to support financial services organisations with decision making as they embed AI into their operations."
— Elayne Grace, Actuaries Institute Chief Executive Officer
Naomi Edwards, Chair of Australian Institute of Company Directors and Chair of Risk Committee at TAL, has described this Paper as an "essential reading for any financial services director" and "packed with useful resources, templates and checklists for financial services risk committee directors, executives and AI practitioners".
The Actuaries Institute thanks Victor Bajanov, Chris Dolman, Jonathan Shen and Michael Storozhev for their contribution in producing this report, and many other reviewers involved in the process.
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