Forging a Responsibility and Liability Framework in the AI Era for RegTech

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Artificial intelligence (AI) in RegTech is being used as part of FinTech in areas such as: risk management modelling and forecasting; surveillance of employee behavior; know your client, anti‐money laundering, and fraud detection; compliance chatbots; regulatory radar of new regulations, assessing applicability, and flagging for interpretation; and surveillance by regulators. Common law courts developed the concept of tort, whereby all persons owe duties of care in relation to any breaches of such duties that could reasonably result in losses to third parties. Liability allocation is often sought to be contractually modified between the parties, and addressed through insurance coverage. Civil liability of parents for minors and of owners of domestic animals provide some analogies to an AI agent acting independently from its human developers and trainers. This chapter addresses six key issues to forge a responsibility and liability framework in the AI era, and some are especially important to RegTech AI.

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The paper advances the theme of the digital disruption arising in the financial industry that has formed a boom in new alliances connecting fintech companies and banking institutes. It is the latter that has to deal with the abundance of regulations by control entities, in addition to being responsible for the technologies they implement. Furthermore, it discusses that due to the rapid emergence of financial solutions, evidenced in recent years, regulators in different countries have had to face a dilemma: evolve or fight. This dilemma has induced financial institutions to now have an extensive volume of data collected from their users, which must be processed and evaluated to ensure that they comply with the regulatory requirements of control entities. It is focused on the discussion around the value of data being made available on the Cloud and its usage right from – making simple bank statements available on the Cloud to Image processing against the legal documents, digital authority, and photos available worldwide for identification and verification process. It also touches upon the value of digital signature in the time of COVID 19. In the end, it summarizes the main points while describing that this is where RegTech appears as a risk reduction solution. For example, artificial intelligence (AI) parameters have been used to detect applications and profiles that present risk or irregular descriptions, facilitating the management and compliance of financial institutions
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