​Wells Fargo: Banks entering a legal quagmire in the name of technology

Wells Fargo's Financial Institutions Group Head of Compliance and Operational Risk is cognisant of the need to adopt machine learning and artificial intelligence, but she said the law isn't exactly ready for it.

The application of emerging technologies such as machine learning, artificial intelligence, and robotics in the financial services industry makes perfect sense, especially when it comes to automating simple tasks.

While automating the entire decision-making process may be many years away, Michelle Neufeld, Head of Compliance and Operational Risk for Wells Fargo's Financial Institutions Group, is concerned that the laws in place are preventing a lot of organisations from implementing the technology required to lay the groundwork.

She told Sibos in Sydney on Tuesday that in the financial crime space, financial institutions have been struggling with balancing the expectation of its customers where technology is concerned, with privacy.

Where businesses operate across borders, Neufeld said there's even more restriction on innovation, with many privacy guidelines stipulating an organisation "can't know things outside of this country or outside this jurisdiction".

"We have been struggling with this issue for 10 years," she said, speaking on a panel discussing the opportunities AI and robotics can bring to the financial services sector.

"The regulatory imperatives from both sides of the house in terms of the financial crimes regulators versus the privacy regulators have not been able to come together to even allow financial institutions a qualification of the privacy rules that says: 'But for risk purposes, privacy rules are in place'."

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Pointing her remarks towards Miles Ward, a director of Solutions at Google Cloud, who used his time on the panel to discuss what his company has developed for the banking sector, Neufeld highlight that hesitation to implement machine learning, for example, isn't because financial institutions don't want to.

"While I love the technology and I love the idea -- and I think that's where we need to go --the risk person in me says I'm being forced to choose which law I'm violating," she continued.

Pointing to the US Patriot Act and the provisions included to allow for information-sharing between institutions, she said the guidelines are limited, reinforcing her concern that it becomes a choice between what law is broken in the name of technology.

"I think it's a fantastic model, but if you look at the actual adoption of 314B, which is institution sharing amongst institutions -- which was a private sector suggestion in early 2001 as the Patriot Act was being rolled out -- has not been utilised as much as we thought it would be," Neufeld explained. "But that's only within the United States, what we're really talking about is using it across borders.

"But even within a single jurisdiction, if you have multiple legal entities, you've got a bank, a broker dealer, an asset manager -- you're not allowed to share information amongst your siblings, you may be able to share information up to your parents, but you cannot share that information across siblings and so we need to work with the regulators in order to take away some of the inhibitions of being able to achieve some of the realities that technology will allow us to achieve."

Agreeing with Neufeld, Adrien Delle-Case, Policy Advisor at the Digital Finance Regulation & Policy Institute of International Finance, highlighted a need to overhaul the current laws prohibiting innovation.

"We need to overhaul everything. We need to apply AI," he said.

"It's hard to balance the two, because on the one side you have your obligations from a financial crime perspective and in financial crime you have a risk-based approach ... the question is how far does my risk-based approach go and when does privacy start, where is the limit?"

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