RBI recently released its Committee Report on Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) which lays down seven guiding principles or “Seven Sutras” for governance, development, and deployment of AI in the financial sector.
The report focuses on protecting customer interest and data confidentiality.
By Aruna Pannala,
Ethical and responsible adoption of AI is the need of the hour for products and services across all industries, and for the financial services sector, it is critical. In a sector that directly manages people’s finances, consumers will trust AI only if they are not subjected to unknown risks. These risks include complexity, opaque systems and inconsistency. “Trust” remains the bedrock upon which consumers test their financial services providers, and it is the service providers’ prerogative to act in good faith.
The Framework for Responsible Electronic and Efficient AI (FREE-AI) committee, constituted by the Reserve Bank of India (RBI), emphasises the need to address the vulnerabilities posed by adopting AI-powered tools and models. The report focuses on protecting customer interest and data confidentiality. The committee has recommended that the organisations that adopt AI should also address the ethical concerns around fairness, transparency, data breach risks and use of customer data. Furthermore, they should address customer grievances through clear communication and adequately disclose the use, limitations, and risks of products and services owing to the embedding of AI. They should also spread awareness to familiarise consumers with the associated complexities and risks of AI-powered products and services.
The FREE-AI committee spells out that the organisations should build strong governance and accountability mechanisms, which can help in building and maintaining trust. Additionally institutional mechanisms for consumer redressal in the form of ombudsman platforms and consumer forums can also help increase consumers’ confidence in AI based financial products and services.
Consumers should only choose financial services and products that make trust, transparency, simplicity, security and fairness a priority, while ensuring that a customer service does not feel alienating or impersonal.
It is recommended per the FREE-AI committee that banks and financial service providers fully disclose AI use, its limitations, and the risks it carries. Guided transaction processes, chatbots, real-time fraud alerts and awareness on use of AI tools, will strengthen consumer trust in AI-powered financial products and services.
The inclusion of jargon and technical terms in financial disclosures and rules could be overwhelming for the common consumer. To gain trust and sustain it, service providers must communicate in a clear, consistent and transparent manner.
Security is a non-negotiable in the financial services sector. With AI tools, consumers expect security to be even more watertight, driven by real-time fraud detection, thereby helping identify suspicious patterns.
However, AI also introduces new vulnerabilities. These include cyberattacks on algorithms, unauthorised data sharing, and potentially breaching sensitive information. The FREE-AI committee recognises these risks and has highlighted the importance of the pillars of governance, accountability, and grievance redressal when it comes to safeguarding consumer security.
The use of AI can now widen the spectrum of financial inclusion, which was previously limited. Consumers who were previously left out of the ambit of financial services, such as credit, either due to the cost of serving them or a lack of verifiable information to establish credentials, can benefit through AI. AI tools can now predict consumers’ future financial needs and recommend financial plans and lifestyle changes.
However, an algorithm trained on skewed data or human biases might continue to unfairly deny loans to the same people or charge higher interest rates to certain groups. The FREE-AI committee explicitly addresses this gap by stressing ethical use and fairness safeguards. This will ensure that technology is not misused to replicate or cater to human prejudices.
Consumers already experience the convenience of AI-driven tools in the banking sector. They use chatbots to get answers to routine queries, look up guided transaction flows, ask for personalised product recommendations and achieve cost savings passed on through sharper pricing.
In addition to these, AI can anticipate what a consumer might need in the future and suggest relevant financial plans. It can also alert customers when they make sudden lifestyle changes that can lead to a dip in their savings.
However, consumers still value the human touch, particularly when they are facing complex financial decisions or have grievances that need to be addressed with care and patience. The FREE-AI committee’s push for grievance redressal through ombudsman platforms and consumer forums is crucial. It ensures AI remains a tool for empowerment rather than alienation.
Financial service providers must go beyond compliance when weaving AI into their systems. They must invest in governance, accountability, clear communication and consumer education. Just as importantly, they must build systems where customers feel they can question, understand and challenge AI-driven decisions.
(The author is Partner, Deloitte India)
(Disclaimer: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)
