AI Explainability Challenges and Recommendations in Finance

This technical report addresses the challenges and practices related to AI explainability in the financial services sector, particularly focusing on generative AI (Gen AI). It outlines the need for enhanced explainability due to the complexities introduced by advanced AI algorithms. The report details the traditional foundations of explainability in financial models and how these principles must evolve to accommodate Gen AI's characteristics. It emphasizes the importance of governance and risk management frameworks, data governance, and ongoing risk monitoring to maintain stakeholder trust and regulatory compliance. The document also presents various frameworks and standards, such as the NIST AI Risk Management Framework, that financial institutions can leverage to improve AI explainability. Furthermore, it discusses the integration of tailored validation and human oversight in AI decision-making processes to ensure transparency and accountability. The report serves as a practical resource for stakeholders in the financial industry, guiding them in the responsible implementation of AI technologies.