Financial services regulation is adequate to handle the growing use of generative artificial intelligence and the prudential watchdog is “not adding to our rule book at the moment”, according to board member Therese McCarthy Hockey.

She told a forum in Melbourne last week that no changes are planned to address more powerful versions of AI, but the Australian Prudential Regulation Authority will be using strong supervision as insurers manage AI risks. 

“You might think APRA would be looking at introducing new regulatory requirements to mitigate those risks, but we currently have no such plans,” she told the Australian Finance Industry Association Risk Summit. 

“Our prudential standards may not specifically refer to AI but ... already have adequate regulations in place to deal with generative AI for the time being.” 

The regulator is “watching closely” but is confident that for now “we have the tools to act”. 

Insurers that want to explore AI use should do so, but only when they are confident they have the technological proficiency and risk management frameworks in place, she said.  

Those without rigid controls should “only proceed with a high level of caution or potentially not at all”. 

Ms McCarthy Hockey also warned that companies cannot delegate full responsibility to an AI program, and insurers must have a “human in the loop”. 

“It is about someone being accountable for the algorithm, its sound operation, and the outcomes it delivers.” 

Ms McCarthy Hockey says the federal government’s approach, such as requirements around AI product testing, transparency on how models operate and greater accountability, will cover “vastly wider terrain” than the industries APRA regulates. 

Insurers must conduct due diligence, put appropriate monitoring in place, test the board’s risk appetite and ensure adequate oversight. With those measures in place, APRA “broadly supports our regulated entities beginning to test how they can incorporate AI into their practices”. 

If entities are unsure where they sit, APRA will “happily provide” an assessment upon request.