Artificial intelligence (AI) was highlighted as an emerging risk to the federal banking system by the Treasury Department’s Office of the Comptroller of the Currency (OCC).

The OCC’s risk perspective for fall 2023, published Thursday, included a section dedicated to the impact AI could have on the banking space, both positive and negative.

“The potential for further benefits as AI gains more widespread adoption could be significant,” the report said. “Developments in the technology may reduce costs and increase efficiencies; improve products, services, and performance; strengthen risk management and controls; and expand access to credit and other banking services. Widespread adoption of AI, however, may also present significant challenges relating to compliance risk, credit risk, reputation risk, and operational risk.”

To this point, the OCC advised banks to manage AI use commensurate with the materiality and risk complexity of the activity in which they might utilize the technology. Popular use cases of AI observed by the regulator include chatbots, fraud detection, and credit scoring.

“It is important for banks to identify, measure, monitor, and control risks arising from AI use as they would for the use of any other technology,” the OCC said. “… Although existing guidance may not expressly address AI use, the supervision risk management principles contained in OCC issuances provide a framework for banks that implement AI to operate in a safe, sound, and fair manner.”

The agency said it will continue to monitor advances in AI, specifically noting generative AI as posing additional risks regarding inaccurate responses that appear credible.

Other compliance risks cited in the report were heightened focus on ensuring equal access to credit and fair treatment of consumers; expanded partnerships with third parties, including financial technology firms; and increases in Bank Secrecy Act/anti-money laundering risks, as indicated by a surge in suspicious activity reports related to fraud.