(Bloomberg) — As bank executives increasingly tout the promise of artificial intelligence to slim down workforces, regulators are warning them not to get carried away.<\/p>\n
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The European Banking Authority, the rulemaker for financial firms operating in the region, has been meeting with national authorities to ensure human bankers are providing adequate oversight of processes increasingly handled by AI, according to Ruta Merkeviciute, head of digital finance at the EBA.<\/p>\n
The watchdog\u2019s concerns extend to the kinds of repetitive tasks traditionally handled by bankers in middle and back office functions, she said.<\/p>\n
For example, \u201cif AI is being used for credit assessments, these kinds of metrics, these results should be checked with humans,\u201d Merkeviciute said in an interview. Such oversight shouldn\u2019t just happen at the end of a long chain of AI processes, but at numerous points along the way, she said.<\/p>\n
The frantic pace of new AI rollouts has fanned speculation it can perform tasks long thought to be beyond the ability of machines. Standard Chartered Plc said on Tuesday it plans to eliminate corporate function roles by more than 15% by 2030 as it adopts AI. Bill Winters, the bank\u2019s chief executive, said the move will help replace what he called instances of \u201clower-value human capital.\u201d His choice of words prompted instant backlash, and Winters has since sought to reassure staff.<\/p>\n
But Winters is far from alone. HSBC Holdings Plc, the UK\u2019s largest lender, is looking into cutting around 20,000 jobs based on an assumption that AI will help it downsize its middle and back offices. On Wednesday, CEO Georges Elhedery said it\u2019s clear generative AI will \u201cdestroy\u201d certain jobs, but also create new roles.<\/p>\n
Goldman Sachs Group Inc. Chief Operating Officer John Waldron earlier this month described his firm\u2019s operations as a \u201chuman assembly line\u201d ripe for automation. And JPMorgan Chase & Co. CEO Jamie Dimon has said AI will \u201caffect virtually every function\u201d at the biggest US bank.<\/p>\n
The question of how to regulate AI is evolving across jurisdictions. The Trump administration\u2019s eagerness to have the US dominate in the field of AI innovation has led to a light-touch approach. The arrival of Anthropic PBC\u2019s Mythos, however, is now prompting it to take a more cautious stance.<\/p>\n
In Europe, the AI Act \u2014 passed in 2024 \u2014 has already created some significant guardrails. Yet the technology keeps moving faster than the rules needed to keep it safe.<\/p>\n
The EBA, which also sets rules for US and Asian banks operating in Europe, wants to ensure that national supervisors across the bloc have playbooks \u201cto mitigate risks\u201d that AI poses to the finance sector, Merkeviciute said. The more complex the AI model, the greater the need for human controls to ensure outcomes can be explained when the regulator comes knocking, she said. Reliance on third-party AI vendors will also be monitored, she said.<\/p>\n
Alain Otaegui, policy expert in digital finance at the Paris-based EBA, says the technology already exists to fully automate compliance tasks such as know-your-customer.<\/p>\n
\u201cThis is what we see for instance on KYC checks, on fraud detection, on different use cases where banks are allowed to implement AI with a pretty high degree of automation,\u201d he said.<\/p>\n
But he also cautions against leaving such processes entirely to AI. \u201cThey need to retain at least some minimum level of human on the loop,\u201d he said. Merkeviciute says part of the worry is that with areas such as fraud detection, AI can come up with \u201cfalse positives.\u201d<\/p>\n
Bhavi Mehta, Bain & Co. partner and global lead for advanced analytics in financial services, said he\u2019s talking to finance-sector clients about the potential liability they face if they rely too heavily on AI.<\/p>\n
\u201cIf you don\u2019t have control and verifiability, if it gives the wrong outputs, you can be liable for significant exposure from a regulatory and compliance perspective,\u201d he said. \u201cIt is still in an experimental stage at most financial services firms,\u201d and \u201cthey have rolled it out in very narrow areas.\u201d<\/p>\n
If AI \u201cdeviates,\u201d for example, it\u2019s important that a bank has a setup in which \u201ca human can intervene,\u201d said Mehta. And while banks aren\u2019t failing, the evidence suggests they\u2019re still struggling with how to build AI into everyday operations so it can work at scale, he said.<\/p>\n
There\u2019s no question that AI is already transforming the finance sector. But banks need to be able to show \u201chow decisions are made and who is overseeing these risks, particularly in high-impact settings,\u201d said Herbert Swaniker, technology partner at law firm Clifford Chance. He also says the focus on \u201ctransparency, audit rights and performance assurance\u201d becomes \u201ceven greater\u201d when banks hand over processes to AI.<\/p>\n
The EBA\u2019s Merkeviciute says a key focus is the notion of \u201cexplainability,\u201d so that human bankers are always in a position to spell out to customers and regulators how AI is being used, and how outcomes are reached.<\/p>\n
Banks replacing humans with AI also face pushback from unions. Nordea Bank Abp, which has said it plans to cut as many as 1,500 jobs as it shifts more tasks to AI, is under growing pressure to prove such a step is viable.<\/p>\n
\u201cWe cannot see that there is a correlation\u201d between Nordea\u2019s announcement and what AI can actually do, said Dorrit Brandt, chair of Finansforbundet, which represents finance sector workers in Denmark.<\/p>\n
A spokesperson for Nordea said the bank\u2019s workforce will continue to evolve, subject to \u201crelevant union negotiation and consultation processes.\u201d And as it implements AI, Nordea \u201cmaintains a strong focus on safety, security, compliance and appropriate human oversight in critical processes.\u201d<\/p>\n
Europe\u2019s banks and unions agreed in 2024 to collaborate on the rollout of AI, which included a pledge to keep humans \u201cat the center of work organization.\u201d<\/p>\n
However, it now seems that \u201cwe will have a big, big wave of dismissals of workers in the next years,\u201d said Angelo Di Cristo, head of finance at UNI Global Union, an umbrella group for trade unions, in an interview last month.<\/p>\n
Assumptions that AI will free banks to cut thousands of jobs may be out of step with the economic, demographic and political reality on the ground, according to Sebastien de Brouwer, deputy CEO at the European Banking Federation. In Europe, a combination of labor shortages, an aging population and strong union representation means banks may need to retrain rather than cut staff.<\/p>\n
\u201cSome predictions went as far as to say that half of the workforce would disappear or would become redundant, and that\u2019s not at all what is happening in practice,\u201d de Brouwer said.<\/p>\n
Merkeviciute notes that bank executives interviewed by the EBA have said they \u201cneed new talent to use AI tools.\u201d<\/p>\n
J.P. Gownder, vice president and principal analyst at Forrester Research Inc., says there\u2019s still not enough granular data on how AI is altering the work bankers do.<\/p>\n
\u201cProductivity statistics aren\u2019t really showing us the kind of boom that would be required for companies to be replacing people with AI,\u201d he said. \u201cBy that I mean, in order for AI to replace lots and lots of people, you need fewer workers creating more value, and that automatically is going to translate it to a higher aggregate productivity rate.\u201d<\/p>\n
For now, he says, \u201cwe haven\u2019t seen that.\u201d<\/p>\n
(Adds union comment from 24th paragraph.)<\/p>\n
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