The Reserve Bank of India (RBI) has issued draft rules that would require banks and other regulated entities to tighten oversight of risks linked to AI and machine-learning (ML) models.
The draft Guidance on Regulatory Principles for Model Risk Management says regulated entities must adopt a board-approved model risk management framework covering every model in use, including AI and ML systems.
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According to the central bank, lenders must measure model risk continuously at the level of each model as well as across the wider organisation.
The proposed steps include tighter controls, limits on model use, remediation or removal of the model, along with a report to the board’s risk management committee.
That committee would have to examine validation reports for models classed as high risk before they are introduced, supervise oversight of third-party and AI-based models, review model-risk classification reports at least once a year, and look into material breaches and other significant issues.
The RBI said all models, including those supplied by third parties, should undergo independent validation.
The draft guidelines state that banks should maintain human oversight for AI systems used in automated decision-making.
Regulated entities would also need to examine risks arising from the behavioural traits of AI models and test how they perform in unusual and stressed conditions.
The draft says institutions should assess models in edge cases, with abnormal inputs, manipulation attempts and adversarial conditions to uncover weaknesses that may stay hidden during normal operations.
For customer-facing AI systems, including generative AI applications, the RBI has proposed extra cyber security protections such as safeguards against prompt injection attacks and adversarial inputs, limits on session and context persistence, and tools to detect unusual usage patterns.
The central bank has invited feedback on the draft by 24 July.
