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Model risk and model validation of fraud and KYC models having AI and ML as emerging trends

The views and opinions expressed in this article are those of the thought leader as an individual, and are not attributed to CeFPro or any particular organization.

Michiel van Lunsen, Data Science Model Validator, ING Bank

What do you do as a team of model risk managers at ING?

The data science model validation chapter focusses on the domains: Loan Pricing, Analytics, KYC Fraud & Compliance. The majority of these models use machine learning techniques.

What are some key advantages of using AI and ML within model risk management?

AI and ML models are more sophisticated in finding patterns in data compared to traditional models. This is especially important in the KYC and Fraud domain. Criminals are becoming more advanced in their approach, so we need more sophisticated models that capture rapidly changing behaviour.

In your opinion what are some of the solutions and dilemmas of KYC/Fraud model validation?

AI and ML are rapidly evolving fields. That means that we need to keep up with the latest technologies, but also be aware of any limitations that these new technologies have. Furthermore, there is a challenge when there is a combination of expert rules and machine learning and how to approach “black box” vendor solutions. We’re currently in the process of establishing the guidance on this specifically.

How can model ethics impact the way we manage model risk whilst leveraging AI and ML technology?

In ING we want to stay one step ahead. AI and ML offer a great improvement to more traditional models. However, that added complexity can lead to bias. It is our responsibility to make sure models within ING are used ethically.

What can you expect from the future of KYC and Fraud change?

We now see more and more awareness of ethics in banks. I expect that in the future consumers will also make their decisions more on the ethical and environmental

Michiel van Lunsen will be presenting at the Fraud & Financial Crime Summit, this event will be taking place on September 20-21 at One America Square.

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