The Growing Dependence of Banks on Big Tech for AI Capabilities: Risks and Concerns

The financial industry’s growing dependence on Big Tech companies for artificial intelligence (AI) capabilities is raising concerns about new risks, according to European banking executives. The use of AI in financial services has significantly increased since the launch of OpenAI’s ChatGPT in late 2022, with banks utilizing AI for tasks like fraud detection and money laundering.

However, the amount of computing power required to develop AI capabilities has led banks to rely more heavily on a small number of tech providers. This dependency is seen as one of the biggest risks for banks, as it could potentially disrupt services across multiple financial institutions if problems arise at a single cloud computing company.

Regulators are also taking notice of this issue, with Britain proposing rules to regulate financial firms’ heavy reliance on external technology companies such as Microsoft, Google, IBM, and Amazon. Effective communication of the risks and benefits of leveraging cloud computing to regulators is crucial, according to Joanne Hannaford, who leads technology strategy at Deutsche Bank’s corporate bank.

This report comes on the heels of Europe’s markets regulator, ESMA, issuing guidance for companies using AI in providing investment services to retail clients. ESMA highlighted the potential benefits of AI but also warned of risks such as algorithmic biases and opaque decision-making by a firm’s staff members.

In the U.S., the Treasury Department has released a request for information seeking public comments on the use of AI in the financial services sector. As the adoption of AI and computing power increases, the financial industry will need to navigate the complexities of data storage in the cloud and ensure they have the ability to switch between different tech providers to avoid being locked into a single vendor.