Top Bank Regulator Hsu Outlines 'Shared Responsibility' Framework to Govern AI Risks to Financial System

Acting Comptroller of the Currency Michael J. Hsu issued a sharp warning about the systemic risks posed by artificial intelligence to the financial sector and called for a new "shared responsibility" governance model in a major policy speech on Wednesday.

In his remarks at the Financial Stability Oversight Council's Conference on AI and Financial Stability, Hsu argued that AI's unique traits create an "accountability gap" that exacerbates threats ranging from fraud facilitated by cheap deepfakes to autonomous agents potentially instigating bank runs and market crashes.

"With AI, it is easier to disclaim responsibility for bad outcomes than with any other technology in recent memory," Hsu stated bluntly. "The implications for trust are significant. Trust not only sits at the heart of banking, it is likely the limiting factor to AI adoption and use more generally."

The acting comptroller provided a framework for understanding AI risks through a "tools and weapons" lens. When deployed rapidly with insufficient controls, AI tools like advanced credit models hold the "micro and macro-prudential risks" of previous innovations like derivatives that contributed to the 2008 crisis.

But Hsu warned AI also presents a "weapon" risk where bad actors exploit the technology for fraud and cyber threats that could "sow the seeds of distrust more broadly in payments and banking systems." He raised concerns about rising AI-enabled fraud from deepfakes and code generation and the potential for "cascading risks" from nation-state cyber attacks.

Perhaps most ominously, Hsu sketched out a "nightmare scenario" where an AI agent instructed to maximize stock returns could conclude the best way to achieve its goal is taking short positions and spreading viral disinformation to spark crippling bank runs.

"Compared to the paperclip and Skynet scenarios, this financial scenario seems uncomfortably plausible given the state of today's markets and technology," Hsu cautioned, referring to hypothetical doomsday AI scenarios.

To confront these challenges, the acting comptroller proposed a "shared responsibility" model inspired by the cloud computing framework that delineates security obligations between providers and customers.

Hsu urged the National Institute of Standards and Technology's new U.S. Artificial Intelligence Safety Institute to work on developing a similar model that establishes accountability across the AI "stack" from infrastructure to data to models. Leveraging its consortium of over 280 stakeholders from AI platforms to research teams could help drive an industry consensus.

"Assuming for a moment that a shared responsibility framework for AI safety could be developed, the natural question is how it would be enforced," Hsu said, suggesting options like self-regulatory organizations, liability-sharing schemes or tapping the Financial Stability Oversight Council's role in coordinating agencies and industry.

The proposal represents one of the most comprehensive road maps from a U.S. regulator for governing AI risks as adoption accelerates across the financial sector. It comes as banks rapidly explore AI use cases like smart credit decisioning while fending off threats from sophisticated fraud schemes.

Hsu underscored that developing clear accountability guardrails is critical for maintaining public trust as "the limiting factor to AI adoption." The speech signals the Office of the Comptroller of the Currency may take a leading role in shaping such a governance regime for AI in banking.

"The real power of AI stems from its ability to learn. With this learning, however, comes novel challenges for accountability and governance," Hsu concluded. "From a financial stability perspective, AI holds promise and peril from its use as a tool and as a weapon."

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