KARACHI: The State Bank of Pakistan (SBP) is finalizing guidelines aimed at ensuring the responsible use of artificial intelligence (AI) in the financial services sector.
These guidelines are designed to foster trust, transparency, and accountability in AI-driven financial services, while safeguarding consumer rights and interests.
In its Financial Stability Review 2024, the central bank highlighted the growing adoption of AI technologies across the global banking industry, noting that Pakistan’s financial institutions are also embracing these innovations. Among the most commonly adopted AI technologies by local banks are robotics, process automation for operational tasks, virtual assistants for customer service, and machine learning techniques for fraud detection and risk management.
As part of its efforts to gauge AI’s impact, the SBP surveyed 55 regulated entities (REs) in Pakistan’s financial services sector, including commercial banks, microfinance institutions, digital banks, and payment service operators. The survey revealed that nearly half of the REs have already deployed AI in their operations or are in the process of development.
The use of AI spans various applications, including fraud detection, customer service, marketing, credit risk assessment, and process automation. However, the report also emphasized the need for financial institutions to manage the environmental risks associated with AI.
Specifically, banks are advised to incorporate the carbon footprint of AI systems into their risk management frameworks, considering it as a distinct risk category.
AI technologies in banking, especially those requiring real-time processing and high accuracy, are among the most energy-intensive. The SBP report stresses the importance of measuring emissions from AI models throughout their life cycle and implementing energy-efficient models and algorithms to mitigate environmental impact.
The report also pointed to the International Financial Reporting Standards (IFRS) S1 and S2, which mandate the disclosure of sustainability-related risks, particularly climate-related exposures. In Pakistan, these standards are being introduced in phases, starting with listed companies based on specific criteria like total assets, turnover, and employee numbers.
Additionally, the SBP’s report emphasized the need for banks to set clear risk appetites and tolerance levels for AI’s carbon footprint, ensuring a balance between operational efficiency and environmental responsibility. It also highlighted the systemic risks AI poses to financial institutions, such as operational failures, cyber-attacks, and supply chain disruptions.
Furthermore, the increased use of similar AI models could lead to greater correlations in financial markets, exacerbating asset price vulnerabilities.
