Financial services companies in particular banks are racing to harness the potential of artificial intelligence Lenders are employing algorithms that analyze consumer data to conduct credit scoring and determine appropriate loan amounts and AI tools examining customer transaction habits are improving fraud alerts and reducing money-laundering risk But how might regulators react Given AIs potential the industry can expect government will have an increasing number of questions about how banks are using this technology That will include how institutions use AI how well it works how stable and secure it is the quality of the data it uses and generates and how its governed Industry should anticipate these concerns so it can help shape regulations and reviews that add value minimize burden and best satisfy regulatory needs Anticipating rules also allows institutions to avoid criticisms later when it can be harder to adjust At this time government rules and regulations arent specific around the use of AI as the technology is still new and still evolving But regulators have latitude to determine whether certain practices are unsafe and unsound which could include misuses of AI For now banks can expect regulators to ask a number of questions about AIs application in banking for instance if its capture and utilization of data comply with specific rules including privacy standards Regulators may also want to know if certain AI applications create discriminatory outcomes and what bankers are doing to avoid these potential problems Regulators will also be interested in how much AI is being relied on within an institution including how well management and the board understand how the technology is being used Over time regulators will want to understand bank AI applications and be able to examine matters for themselves Eventually government interest in how quantitative models are designed tested and validated will extend to AI and banks will need to be able to demonstrate that the technology isnt harming consumers or creating undue risk to the system There are a number of things bank executives and boards can do now These include making sure there is strong governance around AIs usage Management should ensure the banks policies procedures and practices dont create compliance or risk problems There must be an audit trail surrounding the use of AI and its decisioning that can be thoroughly explained to regulators This audit trail must be monitored to make sure that AI is producing understandable outcomes and isnt being used where there isnt sufficient reason or experience to rely on it Management should also carefully scrutinize AI vendors Fly-by-night AI companies may not have given government expectations as much attention as more established technology providers It is most cost effective to select technology and other innovative approaches that take regulatory concerns into account on the front end Patch and fix after a system is partially or fully installed even if possible can be highly disruptive and costly AI is likely to become an increasingly important tool in finance But just like other powerful technologies it has the potential to create regulatory problems if it isnt used carefully This article originally appeared in American Banker